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May 8, 2018
In an article published Tuesday, May 8 on Computerworld, Greenville partner John Jennings discusses SEC’s scrutiny of Ether to determine if it should be considered a security. He expands on the Howey Test, which determines whether a financial transaction qualifies as an investment contract and thus is a security through deciding whether an arrangement constitutes an investment, in a common enterprise, with a reasonable expectation of profits and to be derived from the entrepreneurial or managerial efforts of others. "If all four of those elements are true, then the arrangement is an investment contract [or a] security," says Jennings. “There are a plethora of legal and factual issues that could be teased out, including what is an ‘investment,’ what is a ‘common enterprise’ and who are the ‘others’ whose managerial or entrepreneurial efforts will impact token value and how impactful those efforts are.”
Additionally, he explains that the determining question for Ethereum and other cryptocurrencies established through ICOs may be whether those purchasing the digital coins had a reasonable expectation of profits. “That raises the question of whether the potential increase in the value of Ethereum was to be derived from the entrepreneurial or managerial efforts of others,” he states. "That prong of the Howey test has generally been applied to refer to the managers of the entity issuing the alleged investment contract. Therefore, questions lie in whether the potential appreciation in value of Ethereum should be viewed as being derived from the entrepreneurial or managerial efforts of the Ethereum foundation."
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