SEC Commissioner Outlines Problems With the Agency’s Howey Test
Hester Peirce, a Securities and Exchange Commissioner, claims that the Howey test utilized by the agency to determine if a digital asset is a security has several limitations. The Howey test, which resulted from a 1946 landmark Supreme Court case, outlines criteria under which a financial agreement can be treated as an investment contract and becomes subject to federal securities law.
At that time, the court described an investment contract as a scheme or transaction where an investor puts their funds in a specific enterprise and expects to make gains solely from a promoter or third party’s efforts. In August this year, Gary Gensler, the SEC chairman, claimed that most of the tokens in existence today may be unregistered securities.
Gary Gensler and SEC Commissioner Differ on Howey Test Use by the Agency
Gensler said people purchasing these tokens anticipate profits. However, only a few technologists and entrepreneurs are committed to nurturing the projects. On the other hand, Peirce argues that an investment contract focuses on the asset and the promises attached.
In her opinion, the two components are separate from each other. Peirce used an orange glove example to explain her position further. She said just because one sells you an orange grove as part of an investment contract does not turn the orange grove into security.
Pierce continued to say that securities offering comes in by combining the orange grove and the seller’s promises about how they will tend the orange grove and earn profits for you. However, she is still determining if crypto assets are securities since the Howey test does not mention them.
According to Pierce, the SEC’s reliance on the Howey test is flawed. She referred to a scenario in 2018 when William Hinman, the agency’s director for Corporation Finance, said he does not consider Ethereum and Bitcoin as securities claiming they are sufficiently decentralized. Pierce says the Howey test does not define this threshold.
SEC Commissioner Calls for the Agency to Clarify What Makes a Digital Asset a Security
Peirce urges the agency to clarify how a digital asset can go from being a security to a commodity. According to her, the move would put to rest criticisms that crypto industry players have with the agency’s regulatory approach.
Whether or not some digital tokens are considered securities is an issue that the SEC chairman has constantly avoided addressing since becoming the agency leader. He has only said that Bitcoin, the most famous digital asset, is not a security but never commented on other tokens.
Tokenhell produces content exposure for over 5,000 crypto companies and you can be one of them too! Contact at info@tokenhell.com if you have any questions. Cryptocurrencies are highly volatile, conduct your own research before making any investment decisions. Some of the posts on this website are guest posts or paid posts that are not written by Tokenhell authors (namely Crypto Cable , Sponsored Articles and Press Release content) and the views expressed in these types of posts do not reflect the views of this website. Tokenhell is not responsible for the content, accuracy, quality, advertising, products or any other content or banners (ad space) posted on the site. Read full terms and conditions / disclaimer.