Category: The Howey Test

The Howey Test: Under the Howey Test, whether an investment instrument is a security requires a substance-over-form analysis. Clearly a “stock” or “bond” is a security, but an investment contract can take many different forms and its underlying character may not be as easily recognizable. The Howey Test defines an investment contract as follows…

Nov252014

What Is A Security? The Howey Test And Reves Test

ABA Journal’s 10th Annual Blawg 100

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Sometimes it’s good to go back to basics.  In my blogs I often refer to the registration and exemption requirements in the Securities Act of 1933, as amended (“Securities Act”).  Section 5 of the Securities Act makes it unlawful to offer or sell any security unless a registration statement is in effect as to that security or there is an available exemption from registration.  Similarly, I often refer to the broker-dealer registration requirements.  To be a “broker” or “dealer,” a person must be engaged in the business of effecting transactions in securities.

In today’s small cap world corporate finance transactions often take the form of a convertible note and/or options and warrants, the conversion of which relies on Section 3(a)(9) of the Securities Act.  Section 3(a)(9) is an exemption available for the exchange of one security for another (such as a convertible note for common stock).  Likewise, Rule 144(d)(3)(i) allows the tacking of