Regulations

In the US, the public offer and sale of securities must be either registered pursuant to a registration statement that is filed with the U.S. Securities and Exchange Commission (SEC) or are offered and sold pursuant to an exemption therefrom. Dealing in securities is regulated by both federal authorities (SEC) and state securities departments. In addition, the brokerage industry is supposedly self policed by self-regulatory organizations (SROs), such as the Financial Industry Regulatory Authority (FINRA), or the Municipal Securities Rulemaking Board (MSRB).

With respect to investment schemes that do not fall within the traditional categories of securities listed in the definition of a security ( Sec. 2(a)(1) of the Securities Act of 1933 and Sec. 3(a)(10) of the Securities Exchange Act of 1934) the US Courts have developed a broad definition for securities that must then be registered with the SEC. When determining if there is an “investment contract” that must be registered the courts apply the test from SEC v. W.J. Howey Co., 328 U.S. 293 (1946): an investment of money, in a common enterprise, with an expectation of profits derived from the efforts of others. (Howey said “solely from the efforts of others”; the circuits long ago relaxed that to “primarily,” which is why the test still catches things.) This is the analysis that has been applied to orange groves, whiskey casks, condominium rental pools, and most recently to a substantial share of the token market.