Article, 0419 UTBJ, Vol. 32, No. 2. 16

PositionVol. 32 2 Pg. 16


Vol. 32 No. 2 Pg. 16

Utah Bar Journal

April, 2019




Years of Howey: How the Sale of Florida Orange Groves 75

Years Ago Established Securities Law Compliance Standards for

Cryptocurrencies and Other Digital Tokens Today





2018, William Hinman, the Director of the Division of

Corporate Finance at the United States Securities and

Exchange Commission, provided significant guidance on the

applicability of U.S. Federal Securities Law to Initial Coin

Offerings (ICO’s) and the sale of digital tokens.

William Hinman, Director, Division of Corporate Finance, U.S.

Securities and Exchange Commission, Address at the Yahoo

Finance All Markets Summit: Digital Asset Transactions: When

Howey Met Gary (Plastic) (June 14, 2018). Director

Hinman confirmed in detail that the SEC will continue to

apply the “Howey Test” in determining whether the

sale of digital tokens amount to the issuance and sale of a

security. Id. (commenting that “calling the

transaction an initial coin offering, or ‘ICO,’

will not take it out of the purview of the U.S. securities



Hinman, echoing several speeches by others at the SEC on the

importance of the Howey Test,[1] articulated its elements:

• an investment of [value];

• in a common enterprise;

• with an expectation of profit;

• that are derived from the efforts of others

See Hinman, supra note 1; see also SEC

v. W.J. Howey Co., 328 U.S. 293 (1946).


offerings that contain these elements will be deemed the sale

of a security under U.S. law and, as such, will be required

to conform to disclosure and compliance laws thereunder (as

well as bring significant civil and criminal liability risk

for failure to comply). See Hinman, supra

note 1. This article will attempt to bridge the gap between

the Supreme Court’s ruling in 1946 and the SEC’s

implementation of that decision as it relates to the sale of

digital tokens and other cryptocurrencies. Section II of this

article will briefly summarize both the history and holdings

of SEC v. W.J. Howey Co. Section III will discuss

Director Hinman’s insights into the SEC’s plans

regarding the regulation of ICO’s.


History of Howey


J. Howey founded Howey-in-the-Hills, located northwest of

Orlando, Florida, in May 1925. The W.J. Howey Company owned

large tracts of citrus acreage in Howey-in-the-Hills, and

planted roughly 500 acres annually through the 1930s.

Howey’s History, Howey-in-the-Hills,

available at https://howeyhillsfl.govoffice3.


(last visited February 1, 2019). Mr. Howey also built the

first citrus juice plant in Florida. Id. In the

early 1940s, as a means to produce current income into an

investment cycle with a long lead time, the W.J. Howey

Company began to sell approximately half of the acres that it

developed. See W.J. Howey Co., 328 U.S. at 295.

In May

of 1943, the W.J. Howey Company and Howey-in-the-Hills

Service, Inc. sold a significant number of their tracts in a

suspect transaction. Id. at 296. Each prospective

customer was offered both a land sales contract and a service

contract, after having been told that it was not feasible to

invest in a grove unless service arrangements were made.

Id. at 295. The Supreme Court noted, “[w]hile

the purchaser [was] free to make arrangements with other

service companies, the superiority of Howey-in-the-Hills

Service, Inc., [was] stressed. Indeed, 85% of the acreage

sold during the 3-year period ending May 31, 1943, was

covered by service contracts with Howey-in-the-Hills Service,

Inc.” Id. The Supreme Court further described

the transactions entered into as follows:

The service contract, generally of a 10-year duration without

option of cancellation, gives Howey-in-the-Hills Service,

Inc., a leasehold interest and “full and

complete” possession of that acreage. For a specified

fee plus the cost of labor and materials, the company is

given full discretion and authority over the cultivation of

the groves and the harvest and marketing of the crops. The

company is well established in the citrus business and

maintains a large force of...

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