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.
Glossar
Horizontal Commonality
Convergence ⎊ The concept of Horizontal Commonality, within cryptocurrency derivatives and financial markets, signifies the observable alignment of underlying asset price movements across seemingly disparate instruments.
Common Enterprise
Framework ⎊ Within cryptocurrency derivatives and financial engineering, a framework denotes the overarching structural architecture governing the design, implementation, and operational integrity of a Common Enterprise.
Vertical Commonality
Correlation ⎊ Vertical Commonality, within cryptocurrency derivatives, signifies the statistical relationship between the price movements of different assets or contracts, often extending beyond direct index exposure.
Prong of the Howey Test
Investment ⎊ The ‘Prong of the Howey Test’ concerning investment centers on whether an individual expects profits solely from the efforts of others, establishing a critical distinction within cryptocurrency, options, and derivatives markets.