Which element is NOT part of the Howey four-factor test?

Which element is NOT part of the Howey four-factor test?

• A. Investment of money
• B. Common enterprise
• C. Expectations of profits
• D. Control by the investor

Answer: (D)

The test looks at whether profits are expected to come from the efforts of others, not from what the investor themselves does. The four elements are: investment of money, in a common enterprise, with a reasonable expectation of profits, to be derived from the efforts of others. Because “control by the investor” is not one of those factors, it isn’t part of the Howey four-factor test. In practice, even if investors have some control, what matters is whether profits come from someone else’s efforts (the project team or promoter) rather than the investor’s own management.

The test looks at whether profits are expected to come from the efforts of others, not from what the investor themselves does. The four elements are: investment of money, in a common enterprise, with a reasonable expectation of profits, to be derived from the efforts of others. Because “control by the investor” is not one of those factors, it isn’t part of the Howey four-factor test. In practice, even if investors have some control, what matters is whether profits come from someone else’s efforts (the project team or promoter) rather than the investor’s own management.