Securities And Exchange Commission V. Howey Essay

Securities are investment products, which represents small fractional rights over a business enterprise or a pool of assets. Business enterprises and corporate entities use securities as a tool to raise capital. Primarily, securities provide their holders with either participatory rights in the earnings and management of the business enterprise or promised fixed returns over the value of investment made through purchase of securities. Securities with participatory rights are called equity securities and securities with promised returns are called debt securities. A combination of both is known as hybrid securities.
Conceptual Understanding
To fully understand the meaning and concept of securities, the landmark judgements of Securities and Exchange Commission v. Howey (Howey case) and Reves v. Ernst & Young (Reves case) comes to our aid. In the Howey case, the U.S Supreme Court laid down the essential requirements of an investment contract, which are relevant for determining whether a particular instrument is in the nature of equity securities. The Howey case held that the test of an investment contract is most basically whether the scheme involves an investment of money, in a common enterprise with profits, to come solely from the efforts of others.
The U.S. Supreme Court expanded the purview of the Howey test in United Housing …show more content…
Therefore, for being recognised as securities under the SCRA, any instrument has to fall within the definition of securities. In order to be covered under this definition, the instruments have to be