The managerial efforts test is a criterion used in legal analysis to determine if an investment qualifies as a security. It assesses whether the profits or returns on an investment are expected to come primarily from the efforts of others. This element is a key component of the Howey Test, a standard applied by regulators to classify financial instruments. Its application helps distinguish between passive investments and consumer goods.
Context
The managerial efforts test is a central point of contention in regulatory discussions surrounding digital assets. News often covers legal cases where the Securities and Exchange Commission applies this test to classify tokens as securities. The outcome significantly impacts how a digital asset project must comply with securities laws, affecting fundraising and distribution.
The SEC has provided a critical, functional carve-out from the Howey Test, establishing a precedent for tokens that compensate verifiable network services.
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