MANGUM & ASSOCIATES

An investment contract is a legal agreement between parties in which one party provides money or other assets with the expectation of receiving a return. These contracts fall under the regulations of the Securities Act of 1933. To determine if an investment contract qualifies as a security, the widely recognized Howey Test lays out four essential elements:

• An investment of money
• A common enterprise
• An expectation of profits
• Profits derived primarily from the efforts of others

While the Howey Test is the most commonly relied upon method to classify an investment contract as a security, other legal tests and frameworks may also apply depending on the specific circumstances. Ensuring compliance with these regulations is critical to avoid potential securities law violations.