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Comment by aakilfernandes | Hacker News Reader

IANAL, but:

The interesting thing about securities is that although we think of a security as a "thing" (like Kin) its actually a transaction - as in a "securities transaction". Meaning with two transactions involving Kin, one transaction could be a securities transaction, and the other could not.

This is more obvious when you think of the original Howey test. Selling an orange grove is not a securities transaction, but selling an orange grove where you also promise to cultivate the asset for the profit of the investor is.

Selling $5 of Kin in to a Kik user doesn't sound like a securities transaction, but selling $5 Million to a VC fund does (though probably one exempt from registration).

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Sort of - but it's more about intent/expectation than "thing" vs "transaction." A security _is_ a thing. The Howey test is how we determine whether an orange grove is a security or a deed. The problem with Howey is that it doesn't address situations where investors aren't investing exclusively for "profit" but might be investing for some other benefit to be derived from the use or enjoyment of the underlying asset. So someone might purchase $500 of Kin with the expectation that they'll sell if it reaches $X and regardless they'll spend at least some of it on mini games.

They expect to consume at least some of the coins... but they also anticipate potential profit from some of the coins.

So are the coins "securities?" Are only some of them? (Presumably, $500 - whatever the buyer intended to consume.)

You can see that Howey's focus on investor expectation isn't particularly helpful in where that line is drawn.

In United Housing v Foreman, a sale of stock was considered not to be a securities transaction, even though a stock is explicitly a security.

The court determined the "stock" was not a security. Calling something "stock" creates a rebuttable presumption that it's a security but the purchasers of the co-op "stock" didn't have any possible expectation of profit (the "stock" couldn't appreciate in value, would not pay dividends, was non-transferable, etc.) so it failed the Howey test. Merely calling something stock does not make it so.

You might find SEC v Lauer[1] interesting. Where a non-existent hypothetical investment was determined to be a security. As well as SEC v Edwards[2], where a fixed-rate leaseback agreement for payphones was determined to be a security.

[1] https://caselaw.findlaw.com/us-7th-circuit/1054989.html

[2] https://caselaw.findlaw.com/us-11th-circuit/1156201.html

Ah. Yes I think Foreman was a bad example of what I was trying to get at.

I think my main point was that if Howey had 100 fungible orange groves, and one was sold as a security and 99 were sold straight up, that wouldn't make all 100 orange groves as a security, would it?

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