What Is the Meaning of ‘Common Enterprise’ in the Context of the Howey Test?

The 'common enterprise' prong of the Howey Test generally means that the fortunes of the investor are intertwined with those of the promoter or a third party. Courts typically use one of two interpretations: horizontal commonality (pooling of investor funds where all investors share in the profits and losses) or vertical commonality (investor's profits are directly dependent on the promoter's expertise and efforts).

Most token sales satisfy this prong through vertical commonality.