cryptocurrency, bitcoin, ethereum, crypto
One of the four requirements of the Howey test to determine if an investment is a security is whether the investment is a “common enterprise.” However how courts define “common enterprise” can vary.
A majority of courts apply the horizontal commonality test. Under this approach, a “common enterprise” exists if multiple investors combine their assets and share the risks and profits of an investment. This is the broadest interpretation of “common enterprise.”
Vertical Commonality: Broad
Broad vertical commonality exists where investors’ profits/losses are only related to the efforts of the promotor or issuer.
Vertical Commonality: Narrow
Narrow vertical commonality exists where investors’ profits/losses are tied to the actual profits/losses of the promotor or issuer of the investment. This is the narrowest interpretation of “common enterprise.”