Contribute
Browse Answers

Sign In

#securities-law#ontario
Asked: 2 months ago

What is the Howey Test, and does my company need to worry about it, if we're planning on doing an ICO in Ontario, Canada?

As part of our financing strategy, we are looking at the possibility of an ITO/ICO. One of the pre-requisites, at least in the U.S., is to be able to pass a certain 'Howey Test'. I'm unclear about what that means, but si… (Read more)


Dominic Alfred

IP and Technology Lawyer, Alfred Law


The "Howey Test" is a test created by the Supreme Court of the United States, used to determine whether certain transactions qualify as "investment contracts" and therefore, fall under the control of securities regulators in the United States.


In Canadian law, The Pacific Coin Test determines whether a coin or a token qualifies as a security, or investment contract. Under the Pacific Coin Test, a coin or token is a security if it involves:


  • An investment of money
  • In a common enterprise
  • With the expectation of profit that
  • Is to come significantly from the efforts of others.


If securities rules apply, the entity offering the ICO will have to meet the standard requirements to offer securities to the public.


This includes an obligation to sell securities under a prospectus or pursuant to an exemption from the prospectus requirement, such as private placements selling only to accredited investors in compliance with the Accredited Investor Exemption or providing investors with an offering memorandum containing prescribed information to which liability attaches for misrepresentations. 


In considering whether securities laws apply, the Canadian Securities Administrators (CSA) has noted that provincial securities regulators will look at the substance of the transaction with the objective of investor protection in mind. Using a new technology and new terminology such as selling a coin or token instead of shares or equity to raise money does not determine whether securities laws apply.


Edited: 16 days ago