Securities Analysis

The Fabrica Trust agreement is designed with the intent that Property Tokens not be treated as securities under U.S. federal or state securities laws. This page explains the reasoning behind that structure.

The Howey Test

U.S. securities law lists many kinds of securities (stock, notes, bonds and others). For an arrangement that is not one of the listed instruments, the question is usually whether it is an investment contract, and the test for that is the Howey Test (from SEC v. W.J. Howey Co., 1946). An arrangement is an investment contract if it involves:

An investment of money
In a common enterprise
With an expectation of profits
Derived from the efforts of others

All four elements must be present. The base Fabrica Trust structure (one property, one owner holding the token) is designed to fail multiple prongs of this test. The analysis can differ for a particular offer, arrangement or marketing built on top of it, such as a third party selling fractions of tokens to passive investors.

Why the Structure Is Designed to Fall Outside the Howey Test

No Common Enterprise

Each Property Token represents a single, specific property. The base structure involves no pooling of assets, no shared revenue, and no common fund. Token holders are individual property owners, not investors in a collective venture. (Fractional supply is experimental and intended for small groups such as family co-owners; products that pool tokens are separate arrangements outside this analysis.)

No Expectation of Profits From Others' Efforts

The token holder is the beneficial owner of the property with full control. Changes in the property's value come from the real estate market and the owner's own decisions; Fabrica does not manage or improve the property. The token holder:

Makes all decisions about the property
Bears all costs (taxes, maintenance, insurance)
Receives all income
Can use, sell, lease, or develop the property independently

Fabrica provides infrastructure (the protocol, the trust template, validation services) but does not manage properties, make investment decisions, or generate returns for token holders.

Direct Ownership, Not an Investment Contract

The Property Token is a mechanism for holding and transferring property ownership. It functions more like a deed than like a share of stock. The token holder has the same rights as any traditional property owner: possession, control, exclusion, enjoyment, and disposition.

UCC Characterization Is Separate

The trust agreement includes provisions under UCC Article 9 and UCC Article 12 to enable the token to be used as collateral. The agreement explicitly states that these UCC characterizations:

Are for collateral perfection purposes only
Do not constitute an admission that the token is a security
Have no bearing on whether the token is a security under federal or state securities law

This separation is important: UCC treatment as a "controllable electronic record" or "general intangible" serves a different legal purpose than securities classification.

Regulatory Approach

Fabrica holds 20+ regulatory licenses. It has operations across all 50 U.S. states with varying degrees of functionality. The licensing approach is based on the token being a property ownership instrument, not a security.

Separately, California State Board of Equalization Tax Counsel stated in a written informational analysis (2022) that "a transfer of the digital Token is, in substance, a transfer of the underlying real property itself." That analysis is California-specific, addresses property-tax change in ownership only, and is informational, not a legal ruling; the email itself says it has "no comment regarding the legal status or effect of this trust, other than for property tax change in ownership purposes." It is not a securities determination.

Limitations

This analysis reflects the current understanding of U.S. securities law as applied to the Fabrica Trust structure. Property owners should be aware that:

Securities law is complex and evolving, particularly as it applies to digital assets
This page is informational and does not constitute legal advice
The SEC has not issued specific guidance on tokenized real property
Property owners considering large-scale tokenization or marketing tokens to investors should consult securities counsel

The Fabrica Trust agreement states: "It is the intent of the parties that the Property Token shall not be a security for purposes of US federal securities law (including the Securities Act of 1933 and Securities Exchange Act of 1934), California securities laws, or any other applicable state, local, or foreign securities laws."