Securities Law Section

Message from the Chair

Section Chair: 

Charles Niemeier
Williams & Connolly LLP
Washington, D.C.

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The Federal Bar Association - Securities Law Section is a proud sponsor of the virtual museum and archive of the history of financial regulation at While the museum is free and accessible to everyone at all times, the Section will highlight specific material and information within the museum on securities law issues in the coming months, providing current and prospective Section members with unique insight and context.

Seventy-two years after the landmark 1946 Supreme Court decision in SEC v. W.J. Howey Co., the “Howey test” remains the benchmark for determining whether an instrument qualifies as an investment contract under the definition of a security in the 1933 and 1934 Securities Acts. In the decades since its creation, the test has expanded and contracted the definition of a security several times, most recently to encompass cryptocurrency.

The Howey test has four prongs to define an investment contract. First, there must be an investment of money. Second, the money must be invested in a common enterprise. Third, there must be an expectation of profit. Fourth, the profits must come solely from the efforts of a third party. In 1959, the Howey test was employed in SEC v. Variable Annuity Life Ins. Co. The Supreme Court held that recently-introduced variable annuities were securities, not insurance, since their returns depended on the performance of investments, rather than on the length of the annuity-holder’s life. In 1967, in Tcherepnin v. Knight, the Court easily held that the definition of a security included withdrawable capital shares issued by a credit union. In its opinion, the Warren Court explained how the shares met the Howey test: “Petitioners are participants in a common enterprise – a money-lending operation dependent for its success upon the skill and efforts of the management of City Savings in making sound loans.”

In the 1970s, the Court, influenced by former securities lawyer Lewis Powell, began taking a narrower view of the security definition. Justice Powell authored the opinions in both United Housing Foundation and Teamsters v. Daniel. In the 1975 United Housing Foundation v. Forman decision, the Court held that shares in a nonprofit housing cooperative were not securities. “In short, the inducement to purchase [stock in the co-op] was solely to acquire subsidized low-cost living space; it was not to invest for profit.” Four years later, in Teamsters v. Daniel, the Court continued its more restrictive view and held that a pension plan was not a security. Justice Powell wrote: “Looking separately at each element of the Howey test, it is apparent that an employee's participation in a noncontributory, compulsory pension plan such as the Teamsters' does not comport with the commonly held understanding of an investment contract.”

The expansion and contraction of the definition of a security continues today. Last year, the SEC issued an investigative report concluding that “initial coin offerings,” in which investors are offered the opportunity to purchase digital assets, could be deemed to involve transactions in securities. The report came on the heels of a massive hacking scandal involving the DAO, a stateless venture capital fund in the cryptocurrency industry. As cryptocurrency edges its way into the mainstream, securities regulators will likely continue to draw on the Howey test in their efforts to protect consumers.


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