Howey rule

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Howey rule

A rule of securities law articulated by the Supreme Court in the case of Howey v. Securities and Exchange Commission. The Howey company sold real estate interests in orange groves that it managed.As a practical matter,one could not buy the real estate and make any profit from it unless Howey handled all the details of cultivation, harvesting, and marketing. The SEC claimed Howey was selling “investment contracts” and therefore had to register with the SEC.The Supreme Court agreed.

The Howey rule, as it has come to be called, says that an investment contract is

1. A contract, transaction, or scheme whereby one person invests his or her money

2. in a common enterprise

3. led to expect profits solely from the efforts of a third party.

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