Howey Test
The Supreme Court test for whether an arrangement is an “investment contract,” and therefore a security: an investment of money in a common enterprise with an expectation of profit derived from the efforts of others.
The Howey test comes from SEC v. W.J. Howey Co. (1946). An arrangement is an “investment contract,” and therefore a security subject to federal and state securities laws, if it involves (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) to come solely from the efforts of others. Courts no longer read "solely" literally (see Texas application below).
The test reaches well beyond stocks and bonds. It is the framework courts and the SEC apply to novel instruments, including many digital assets and tokens. Whether a token is offered and sold as a security turns on the economic reality of the arrangement, not on the label the issuer chooses.
Classification drives everything downstream: registration or a valid exemption such as Regulation D, what may be said and to whom, and how an offering is structured.
Texas application
The Texas Securities Act, recodified at Tex. Gov't Code Title 12, lists "an investment contract" as a security (§ 4001.068(a)(1)(O)). The Texas Supreme Court adopted the Howey test in Searsy v. Commercial Trading Corp., 560 S.W.2d 637 (Tex. 1977), and read "solely" to ask whether the efforts of others "are undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise." An instrument that is a security under Howey is generally subject to Texas registration or exemption requirements as well as federal ones.