There's a line of critique that says it's unfair for the government to have allowed Coinbase to break the law for so long, and then change their mind.
But in the American system, the burden of proof is on the government (SEC) to prove the behavior is actually illegal and until then, Coinbase was presumed innocent and had the freedom to continue doing what they want.
What's frustrating for crypto advocates is they were unable to use the 5yr analysis period to convince society to legalize their behavior (in the way that Uber/Lyft were able).
But this is one of the things the American system gets very right. A "trial" period where new behavior is allowed until the Executive branch can either prove its illegal, or Legislative branch can explicitly make it legal. It's an expensive system that achieves a balance between regulation and experimentation.
I mean Coinbase literally sued the SEC to get them to define more appropriate rules. So I have a hard time buying that Coinbase just ran away with it and didn't try to get things more legalized. They realized there was jeopardy in how they operated and wanted to get things clarified.
> Rather than initiate new rulemaking, Chair Gensler has repeatedly stated through speeches and
testimony that the vast majority of digital tokens are securities, and has asked issuers and
exchanges that offer, sell, and trade them to come in and register. We disagree that the majority
of digital assets are securities. For those digital assets that are securities, registration under the
current rules is, for many market participants, either not possible or not economically viable given
the associated and unnecessary compliance burdens.
They need to do more than try to get things more legalized. They have to succeed. Or they get sued for breaking the law. If people don't agree that it should be legal, then oh well. That's the risk.
The justification will be that regulation stifles innovation, which I always conclude that America is a business-first country, humans after, and caring for the lives of people is bad for business.
It seems like there's a US government mandate to kill crypto in the US. This energy would've been better at the time of peak-ICO, directed at the worst offenders.
Going forward I would hope to see the SEC put more of its energy toward people who did ICOs involving untrue statements and legal violations as key parts of their pitches, as well as people who did SPACs with egregious forward projections.
This is such hyperbole. If you're going to trade securities just register properly and follow the regulations. And yes crypto is a security. The SEC is just doing their job when they fail to register yet trade anyways.
Saying "just register properly" is insane at this point. Coinbase has spent millions in legal fees over the past decade trying to get the SEC to publish how to do exactly that, and the SECs repeatedly refused to clarify how to do that. So much so that Coinbase sued the SEC for ignoring process in April, and Gensler got pulled into a congressional hearing a couple months ago where several congress people attempted to get him to clarify rules, and he refused to do so.
The SEC wants to "rule by enforcement", and are doing everything in their power to refuse to define clear rules, because then people would be able to follow them, and the SEC would no longer have the power to leverage enforcement actions against them.
The idea that they need “guidance” is another way of saying if we follow the clear law what we want to do is impossible so can you help us with that.
The SEC answer has been yeah no we can’t solve that problem for you.
It’s all on the first few pages of the linked complaint, they didn’t register as a dealer, broker, clearing house, and so on, because the would instantly be on the wrong side of all sorts of regulations for what those institutions are allowed to do.
They don’t want clarity. They wanted waivers. They wanted the SEC to say crypto is different so you don’t have to do XYZ.
Yes, it would be like a married man asking his wife for a list of things that count as cheating so that he can be sure to avoid doing anything she wouldn't approve of.
Very few women would respond, "here is the list, if I forgot anything it is totally my fault and not your fault for doing something that is technically not on the list"
Except that marriage is a voluntary relationship of mutual cooperation and trust. Regulation is an involuntary relationship of coercion and enforcement. The least the coerced party may as for is to know what it is going to be punished for, what are the rules of the game. And if us, and always have been, the "fault" of the legislature and law enforcement if somebody does something lawful but they didn't like it. That's how law works in a legal culture we used to have - whatever is "technically" on the list, is not legal, all the rest is legal, and ghe burden oc proof is on the state. You would not like the alternative.
Except the USA is a democracy. If a Orange reality tv star can be elected president, a crypto person could be as well. But most people don't want "code is law".
I guess this is a five-star effort in the category of "make any discussion about Trump because I can't talk about anything else". Any on topic comments to follow?
No, this is the same point I've been making since 2010. Having libertarian ideas like "code is law" and "money should be decentralized and permissionless" sound nice in theory, but in the real world they don't work very well.
You are seeing this now with the fact that we have not elected anti-regulation people over the past 13 years. And people have preferred to stay with more traditional financial products. So crypto isn't working out in the real world.
Well, if US regulators can destroy any company in crypto space in a couple of days, and are willing to do so, then it's hard for it to "work out in a real world". If the regulations are "just don't do anything bad, and we'll tell you what's bad after you do it and invest billions in it" then it's hard for it to "work out". If the users are asked to invest into assets that can be wiped out of existence by regulators at any minute, then it's hard for it to "work out".
If you created a nuclear power plant in your basement that you feel is totally safe, that is great, but a good chunk of the rest of the country wouldn't be comfortable with that and they would expect the government to shut down your nuclear power plant.
You could disagree with them and the government, but it wouldn't work out well for you to invest all your money into your basement nuclear reactor.
That would not mean "nuclear power does not work". That would mean "people do not want it, whether it works or not". Except here it's not "the rest of the country" but a bunch of unelected bureaucrats which 99% of the country doesn't even know exist, and certainly didn't ask them to do anything.
You started with claiming it "does not work", but ended with "it's bad investment because the government would destroy you". These are wildly different claims.
Bitcoin was created specifically to prevent the government from controlling money supply, by creating an alternate form of money. The idea that it isn't succeeding because unnamed bureaucrats is misleading. The SEC and other regulatory frameworks exist today because of laws created over decades. Those laws were created to protect people, after many people were scammed.
People generally don't want to get scammed, which is why crypto is failing. Obviously we are not talking about the software here. I'm sure plenty of Web3 "software" works just fine, what doesn't work is selling unregulated securities to investors who lose all the money.
> The idea that it isn't succeeding because unnamed bureaucrats is misleading.
You use two distinct definitions of success here. As a means to transfer value beyond governmental control, Bitcoin has succeeded. You can do it any time, provided you are fine with your value stored in Bitcoins.
The other definition is "anybody can use it without the fear of ever being scammed and the regulators can not make using it inconvenient or legally dangerous". This is obviously impossible - the regulators can declare anything they want to be illegal (even the Constitution is only a weak impediment, and it does not have any barriers preventing financial regulation, and as long as people do transactions, they could scam each other. This is absolutely unrealistic and non-sensical definition of "success" - nobody ever could deliver on this, including every existing payment system, where people get absolutely scammed all the time.
More accurately it would be like a married man asking his wife for a list of things that count as cheating while openly fucking prostitutes and fathering multiple children and bragging about it.
Take a moment to look into it. Coinbase has hired the top legal team in the world on exactly that topic. They know the case law. The SEC has consistently refused to respond to any queries for clarification on what Coinbase can do to ensure compliance.
Coinbase hired a top legal team to avoid regulation. You're parroting the story that those expensive lawyers have concocted as justification for their efforts to avoid enforcement while the company was busy selling unregistered securities.
So, Coinbase wanted to convince the SEC they are not a securotoes exchange. The SEC didn't buy it. Instead of going forward and properly register, Coinbase choose to continue operating under their own interpretation of the law. Now the SEC sued, tool them long enough, and we will find out who of those two is right.
If I had any money with Coinbase or Binance, I pull it out ASAP.
Or Coinbase hired the best legal team in the world to seed confusion because they never wanted or intended to register, but needed a hypothetical position to defend against journalists and skeptics.
Obviously a wild conspiracy claim. But then again we're talking about fintech.
They have hired the top legal team in the world with the specific remit of "get us the answers that are easiest and cheapest for Coinbase".
That is entirely tangential, if not orthogonal to the subject of "define securities".
I mean from Coinbase's own filing. "The SEC has stated that digital tokens are securities. We disagree..."
and "registration under the current rules is, for many market participants, either not possible or not economically viable given the associated and unnecessary compliance burdens"
It's not that Coinbase disagrees that they're securities, as such. It's that they say it's too much work or cost to do so.
Those decades of case law still don’t clarify the rules, they only clarify what isn’t allowed. The actual rules have yet to be published, for good reason, because it would limit the SEC’s cartel. By NOT having rules, they can claim something is “illegal” and have the weight of the US federal government to bully with. By defining what is legal and what is not will allow smarter folks to game the SEC to their advantage. Coming up with securities that meet the definition but are different than what the SEC is aware of. This is all about knowledge and power. Keeping it in the SEC’s court. Keeping it in the SEC’s control.
If it was known risk that the alleged perpetrators didn’t accurately account for, that’s on them isn’t it?
I agree with the general complaints about unconstitutional power, but when you know the SEC operates a certain way, and you try to get around that by throwing massive amount of money/lawyers at the problem, are you really a victim?
Please read the actual Petition for Rulemaking Coinbase filed in July 2022. It is extensively footnoted about how the "decades of case law" don't apply to this new thing that has only existed for 1.3 decades and was designed around the existing laws on purpose.
That is, read it if you actually want to understand the situation.
I skimmed the document to go directly to the questions Coinbase is asking, and really, the first question is:
> Are the Howey and Reves tests the appropriate tests for determining whether digital assets are securities?
Which makes it pretty clear to me that a) Coinbase is aware that the Howey test applies to cryptocurrencies, b) Coinbase is aware that many cryptocurrencies are likely to be classified as securities requiring registration by the Howey test, and c) they want the SEC to change its regulatory position so that is not the case. Skimming many of the remaining questions, it is striking that Coinbase isn't complaining about a lack of clarity in the current regulations, they're complaining about what the current regulations require them to do.
So...just going to skip the part about actually reading the footnotes? I just want to be clear on whether to consider you to be someone who has taken the time to inform themselves about the matter.
At your behest, I did go to the footnotes. And my read of the footnotes is not that they're an extensive citation of case law to justify their points. (There's just 5 cases cited). Most of the footnotes are citations to various other exhortations that essentially amount to "we think existing financial regulations are too onerous for cryptocurrency companies, please loosen them." Again, there's very little "we think the regulations are unclear," but rather a lot of "we can't do what we want to do under these regulations, please loosen them."
Coinbase's opinion on the matter is pretty irrelevant to determining what is and isn't a security. The fact that they tried to get the SEC to tell them what they were doing was or wasn't allowed (never mind the fact the SEC likely had an ongoing investigation that prevented them from commenting in the first place) is wholly irrelevant to the fact they were actively breaking the law.
The facts are the SEC thinks Coinbase ran afoul of the laws and regulations around securities. Coinbase has been trying to get the SEC to either explicitly or implicitly allow Coinbase's operations, and the SEC declined to do so.
They probably went through several legal teams before they found one that could be willing to try some wild strategy, or they were willing to take the Uber approach and break the law and cash the checks, hoping to outrun law enforcement and lobby for the laws to change.
Yeah, I can see they're trading in unregistered securities, and they're going to have the book thrown at them for it. Anyone that's not a crypto fanboy can see they were trading in unregistered securities.
Disputing the claims that a self-interested party makes doesn't mean you think you're smarter than them. It's okay to disagree with people; even lawyers and rich people.
Not that uncommon, I'm afraid. Check out the GDPR threads: there is a huge difference between the people who discussed implementing it with lawyers and the general public.
And there is a huge difference between the people who 'discussed implementing it with [american] lawyers' and people who actually worked with EU watchdogs and implemented changes.
Coinbase Staking, the specific service that the SEC is going after here, is obviously not a security. It's a hosted custodial wallet, and Coinbase provides delegated staking. IMO Coinbase lawyers are about to eat the SEC alive.
> In a common enterprise - check (the staking pool)
I'd take issue with this one. Is the "common enterprise" here supposed to be Coinbase, or the Ethereum network itself?
The Ethereum network offers financial incentives for supporting the distributed infrastructure. In order to ensure good behavior, an amount of "stake" is required to keep people honest, such that dishonest people get their stake slashed. Coinbase provides a nice handy UX where Ethereum holders can stake their assets using validator nodes operated and maintained by Coinbase for a small cut of the staking rewards.
> Is the "common enterprise" here supposed to be Coinbase, or the Ethereum network itself?
Coinbase, and Coinbase's pool(s). As you cite, "using validator nodes operated and maintained by Coinbase". Coinbase and the staking users are engaged in a common enterprise for mutual profit.
Does my putting money in a certified deposit at a bank count as a security? Note that that one is interesting, as their are brokered cds, and those are definitely treated as securities. And then their are plain interest bearing savings accounts, and those are not? (Or are they all, nowadays?)
(And yes, this is no different than a loan that you give out not being a security, but loans can be wrapped up in forms that are considered securities.)
I suppose you can argue it is one of scale? If I loan money to some friends in the condition that they pay me back with interest, nobody cares. If I set up an exchange so that many people can do this, it gets interesting.
> Staking requires assets to be locked on the protocol in order to earn rewards.
This is not true for my savings account.
As for loans, Reves v. Ernst & Young established that "a note is presumed to be a security unless it bears a strong resemblance, determined by examining four specified factors, to one of a judicially crafted list of categories of instrument that are not securities". That list of exemptions includes mortgages; it does not include cryptocurrency staking.
I'd say that "locked on the protocol" is functionally equivalent to having money in a bank account, so yeah it is true for your savings account. You can still take it out (aka "unlock" it) at any time. The staking/unstaking process is just an on-chain event that requires the staker to have custody over the ETH. No different from a deposit or withdrawal from a bank account.
This is different than a lot of other DeFi which does not require any external custody.
You have Marine Bank v. Weaver (and FDIC insurance) to thank for that.
> We see, therefore, important differences between a certificate of deposit purchased from a federally regulated bank and other long-term debt obligations. The Court of Appeals failed to give appropriate weight to the important fact that the purchaser of a certificate of deposit is virtually guaranteed payment in full, whereas the holder of an ordinary long-term debt obligation assumes the risk of the borrower's insolvency. The definition of "security" in the 1934 Act provides that an instrument which seems to fall within the broad sweep of the Act is not to be considered a security if the context otherwise requires. It is unnecessary to subject issuers of bank certificates of deposit to liability under the antifraud provisions of the federal securities laws, since the holders of bank certificates of deposit are abundantly protected under the federal banking laws. We therefore hold that the certificate of deposit purchased by the Weavers is not a security.
The test still applies. So do the exemptions to it (some established by Congress, others by judicial action). There's no exemption for cryptocurrency staking pools.
Perhaps Coinbase's eventual appeals will establish one, but I doubt it.
This is how the system works. "Code is law" does not apply to actual law; it's a long history of interpretation, wiggle room, precedent, legislative intent, and common sense being applied in various amounts. It works pretty well, all things considered; far more than trying to explicitly write down every little edge case.
Ah, completely agreed. But we can't lean on "it is easy, the Howey test explains all" without a huge caveat.
I will note that this particular path is treading on the "lets write down every edge case." As such, it would be better to have a slightly stronger guideline than that. Specifically, when the law is "this test, except for specific carve outs that all fail the test", that is a pretty bad law. Unless there is some unification of the carve outs other than "we decided these don't apply."
The "decades of caselaw" specifically includes instruments that "failed" the test but were still judged to be non-securities. So, it makes sense to push for a legislative/regulatory judgement.
This is one of the things at issue, but far from the only one.
And Coinbase does not provide delegated staking in the way that Kraken did, for example, where funds were pooled and rewards distributed proportionally.
The difference is technical and detailed, but very important.
Yes, the way Kraken was doing it was super sketchy. Basically you give them your money, and they give you some regular APY. Very reminiscent of a ponzi scheme.
Coinbase did it right, structuring it as a staking service. Staking is something that anyone can do, but it's a pain in the ass. Coinbase make it easy by letting you stake assets, and they run/monitor the staking nodes for you, and as service fees, they take a cut of the rewards (which fluctuate moment to moment).
Yeah, but it was their best option. If they got lucky or bribed the right people they could have got their assets listed as non securities due to a technicality.
But on the other hand, I'm extremely glad I don't live in the USA.
I don't believe the SEC's definition of a security or the rules they put in place are a net good. I would not like to live under the SEC and other US financial regulator's restrictions — not just relating to crypto, but equity crowdfunding, retail derivatives platforms, and more, too. And I would not value the so-called "protections" that target the easiest to apply rules to over the worst offenders, and that have done little or nothing to provide clarity and end regulatory ambiguity. I am not protected from killing myself skiing, or losing all my money gambling, so I should not be "protected" from accessing certain financial assets/products — especially not to the extent and in the way that this happens in the US.
I think many (perhaps almost all) other nations have better definitions around securities, and better, more proportionate, and clearer rules for them (of course probably none are perfect, but that is true of nearly all rules). Some of those countries have even accepted that many of their citizens would like to experiment with these new technologies, and might like to see a different model for their regulation, to allow this experimentation, and tried to create rules to allow this, realising that stability and stasis should not be the goal above all else.
For what it's worth, I don't think some of your examples are fully on point.
In many countries, gambling is heavily regulated. Not everybody can gamble, not everybody can offer gambling services, and there are rules and disclaimers on tickets/entries/whatever.
Similarly, yes you can ski anywhere, but some companies included waivers and disclaimers if e.g. you want to use their lifts or slopes or services.
Point is, even the best examples you came up with aren't actually a clear-cut case of "you can do whatever you want, it's on you, with no regulations or warning or protections".
At their best, regulations are a collective "We tried this, it sucked/harmed people, ouchie, let's not do it again". They ARE a "Let's learn the hard way" but on a societal scale. It is, to me, insane to take an unpragmatic, extreme, libertarian way of "everybody should learn from their own mistakes only".
(at their worst, of course, regulations are oppressive, ridiculous, overly complicated, serve limited or counter purpose, ambiguous, overbearing, and growing ad infinitum:)
“ think many (perhaps almost all) other nations have better definitions around securities”
That’s absurd. American markets are preferred by most of the planet. You may choose to keep your money out based on principal, but it won’t be a financially driven choice. It’s like buying a car based on the cars’ color. It’s one aspect but not one of the more important aspects. For most people, the criteria would be returns vs risk. American markets are relatively low risk and high return, even if we aren’t very democratic lately.
>Saying you haven’t done it and not letting you do it is a bit of a catch 22.
You would also get into serious trouble if you would sell a drug without approval from the FDA, and they might deny your application because it isn't fit for purpose. Same with the SEC just because you want to register your crypto security does not mean that they have to be allowed on the US market.
If someone invented a new thing that was possibly but not definitely a drug requiring FDA approval, and the FDA refused to make an explicit judgement on it for years as it grew to a huge industry, then eventually brought down the hammer, that would be a bad process. The courts may agree with the SEC that Coinbase sold unregistered securities, but they had the opportunity to clarify the law years ago, and Coinbase has been earnestly seeking clarification.
The NFA rules making no sense not withstanding, the pistol brace one is particularly egregious as they explicitly said it’s legal in a prior determination and there’s millions of them in circulation.
A better analogy is that you would get in serious trouble selling a drug without approval from the FDA at the same time the FDA has never approved any drugs. It is clear to anyone who understands what is happening that the US government and our faltering financial system is desperate to eliminate crypto all together, and will throw up so many legal and regulatory hurdles that even if crypto technically remains legal it won't be worth the risk or the cost.
Look at Telegram. They tried to use Reg D to sell the initial SAFTs, and restricted it only to millionaires, so clearly they were the type of “accredited investor” the SEC wanted.
Well, Rule 144 says after a year of holding, these millionaires could sell to anyone. Read section 4a(1) of the Securities and Exchange Act. But, somehow, the SEC got Telegram to abandon its plans and return all the money. Because the SEC argued that TON itself was a security, not a commodity, they said that it cannot be sold to the public.
What if the investors were the ones selling, and not TON? If they are not AFFILIATES of TON, purchased without a view to resell, held them for a year, then why can’t they resell a few here and there? They are not considered underwriters under Section 4(a)1. Even most states allow such sales. Not to mention that the new Reg D after the JOBS Act pre-empts state laws for the primary sales, so I am not sure the states could easily win a case.
I followed that case and it was never really clear what securities laws Telegram broke by making a Reg D filing and a SAFT. Maybe someone here can explain, if you actually read the case also.
Now the decentralized TON community is building it instead.
Please take a moment to look at anything that Coinbase legal has put out in the past few years. They have desperately been trying to figure out how to register, to the point of suing the SEC to get information, and the SEC has time and time again refused to provide any information about how to do that.
Coinbase was founded, from day one, to be the most compliant cryptocurrency exchange in the US. They have hired massive teams of former lawmakers and regulators to try to navigate the path to get cleared by the SEC. If Coinbase hasn't been able to do it, how could any other company reasonably expect to do it?
I expect that when Coinbase eventually responds to this, likely in the next few minutes, the response will contain the full timeline of everything they've done to try and register. I've been listening to their lawyers get interviewed on podcasts and seen the countless blog posts they've posted about trying to get anything from the SEC, which has been entirely ignored. It's pretty infuriating. The SEC needs to label Coinbase as some lawless entity that refuses to follow the rules, when nothing could be farther from the truth.
> If Coinbase hasn't been able to do it, how could any other company reasonably expect to do it?
Perhaps the answer is "it can't be done"?
If I tried to start "Uber for Hitmen", and I couldn't find a legal path past regulators, that's because the business model itself is illegal, not because regulators meanly refuse to tell me how to legally murder people.
> They have desperately been trying to figure out how to register, to the point of suing the SEC to get information, and the SEC has time and time again refused to provide any information about how to do that.
And yet, despite how they spin it in press releases, their _filing_, which is where the rubber meets the road, says nothing about "figuring out how to register", but rather says that "for many tokens, registering is not possible due to effort involved, or not economically viable" (surprise, surprise, Coinbase doesn't want to absorb the cost of registering securities when it comes to the Shitcoin of the day).
In other words, "we know how to register these tokens as securities - but our business model doesn't make it possible to do so profitably".
The problem is that, if cryptocurrency tokens are securities, Coinbase's business model is illegal under current securities law.
> ... if various crypto assets are deemed securities, Coinbase would therefore need to register as a securities exchange, in order to keep offering trading in those assets.
...
Furthermore, under current securities law, securities exchanges are not permitted to offer services directly to retail customers, and Coinbase could theoretically be forced to separate the exchange and broker portions of the business.
Sure, I can found a drug marketplace selling all drugs and try to be the most compliant of those. Those intentions in no way require that the government just change the rules to allow me to do whatever otherwise illegal thing my business requires.
The only way the US government can effectively enforce their regulations is to kill the exchanges and then try to make sure that organic trade can't happen. How else can they exert control over something like Monero except attempt to kill it? What is option B? It is not hyperbole to observe the obvious; something has to give.
It is notable that the crimes here are victimless. I don't recall if I have ever bought anything on Coinbase; but the VIOLATIONS section of the complaint isn't accusing them of anything I care about in my capacity as a crypto trader.
There’s a list of coins that coinbase has sold that the SEC considers securities on page 33 of the filing, and Bitcoin is not in the list. They list coins like SOL and DASH. I’d paste the whole list but my phone won’t let me copy from a PDF.
The SEC and Supreme Court say that "a note is presumed to be a security unless it bears a strong resemblance, determined by examining four specified factors, to one of a judicially crafted list of categories of instrument that are not securities".
other very popular industries could be selling securities, if you actually apply the test. Tell me the flaw in the following, and if there is no flaw, why did the SEC never go after them to make an example:
All shows like Yu Gi Oh, Pokemon, etc. have been running, technically speaking, unregistered securities offerings throughout the world and United States, yet the SEC does nothing. They are textbook cases of the Howey Test:
1) People (kids, in fact!) buy Yu Gi Oh trading cards
2) There is an investment of money (either they nag their parents, or they actually spend a non-trivial proportion of their own life savings)
3) With an expectation of profit. Witness how many of them don't actually use the cards, but keep them in mint condition (and as we have seen SEC successfully argue in the recent case SEC vs LBRY, if even a few people buy with expectation of profit, then ALL those sales are securities).
4) From the efforts of others -- namely the producers of the show, and their promotion of Yu Gi Oh trading cards. Trading! Perhaps even selling!
5) There is definitely a common enterprise, that isn't even decentralized. The Yu Gi Oh show is produced in Japan and shown in the USA, and drives the sales of the cards. Cancel the show, and the cards fall in price.
Yu Gi Oh Abridged series even lampooned this, to great comedic effect.
Oh those foreign-owned Japanese companies, preying on our kids selling them investment contracts! Do they really think the kids are sophisticated investors who think things through when they keep their mint-condition cards! Who will buy the top and be holding the bag after the show is canceled?
So being a textbook definition of Howey, why did the SEC never go after Pokemon, Yu Gi Oh and any of the other "merchandising" companies? How about Marvel with their mint-condition comics? Isn't that a "common enterprise" since some people buy comics for their investment value?
> 5) There is definitely a common enterprise, that isn't even decentralized. The Yu Gi Oh show is produced in Japan and shown in the USA, and drives the sales of the cards. Cancel the show, and the cards fall in price.
That is not a common enterprise. Where is the role of the "investor" (purchaser of the cards) in this enterprise?
To make the claim that it’s not a common enterprise, you’d have to actually define the term “common enterprise”.
Can you link to an authoritative or reliable definition? Or case law? Really anything? That would tive us a basis for discussion. Merely claiming “it’s not a common enterprise” cause it’s your feeling, is a weak defense if SEC were to bring a case.
> In order to satisfy the "common enterprise" aspect of the Howey test, federal courts require that there be either "horizontal commonality" or "vertical commonality." See Revak v. SEC Realty Corp., 18 F.3d. 81, 87-88 (2d Cir. 1994) (discussing horizontal commonality as "the tying of each individual investor's fortunes to the fortunes of the other investors by the pooling of assets, usually combined with the pro-rata distribution of profits" and two variants of vertical commonality, which focus "on the relationship between the promoter and the body of investors"). The Commission, on the other hand, does not require vertical or horizontal commonality per se, nor does it view a "common enterprise" as a distinct element of the term "investment contract." In re Barkate, 57 S.E.C. 488, 496 n.13 (Apr. 8, 2004); see also the Commission's Supplemental Brief at 14 in SEC v. Edwards, 540 U.S. 389 (2004) (on remand to the 11th Circuit).
So it seems to me very clearly that the Yu Gi Oh franchise and people having cards in mint condition with a view to resell tnem have "horizontal commonality" or "vertical commonality” with its show which is promoting them.
The buyers are depending on the efforts of others (the show producers and promoters) to make their cards worth more.
Terms in law need to have a commonly accepted definition in order for anyone to decide court cases. Sometimes case law has an effect to chnage the definition.
What is your point? That definitions are irrelevant, and anyone can claim any combination of words ?
That, and I am not a lawyer, apparently it is pretty clear what a "common enterprise" is in the context we discuss here. Challenging that definition just because you don't like it might win internet arguments. Wether or not it works in court this time, believe it or not that defence was already tried, will be seen. I guess it won't end too well for crypto so.
You’re 100% wrong on this one. No one is “challenging the definition”, merely challenging a fallacious statement written on HN which probably got the definition wrong, and step 1 is to post the definition so the statement can be debunked.
Legal terms often have idiosyncratic definitions shaped by case law, and you can’t simply use basic English understandings of terms like “common enterprise”.
Even in plain English “common enterprise” could have a variety of meanings, and sayjng “that is not a common enterprise” is super problematic.
In the case law, there is a clear precedent of hundreds of cases of having a “promoter”, and you are “depending on the efforts of others” to tout the security, and you are “in common enterprise” with that promoter EVEN IF you have never met.
If the Yu Gi Oh franchise stops doing the show, that affects your sales. See above, the actual defintion posted… and you will see that, in fact, Yu Gi Oh and Pokemon definitely has a common enterprise in the legal definition of the term
If you are so convinced, you should find a way to test your theory around Yu Gi Oh in court. Regarding crypto exchanges, we will get our answers soon enough. The majority of people, crypto still is not mainstream, is better served sticking with the existing rules and regulations. And definitions, how do I hate this J. Peterson / Ben Shapiro debate technic of never coming to the point and dragging everything down to pseudo-intelectuall pedantry.
I argued with Ben Shapiro about his "Jews in Name Only" remarks, for instance. One can always hide behind vague phrases like that – what Wikipedia calls "weasel words" – and keep changing them.
Look through my comment history -- do I strike you as someone who dances around a point, or minces words? I am telling you how it is: you seem to be uninformed on how the US legal system works. Courts can't be used as "test suites" that you can just spin up, and legal jargon isn't the same as plain english, nor is it like code that you can just test for a binary outcome.
What you're suggesting is that I waste my time petitioning the SEC to look into Yu Gi Oh or Pokemon, which operated unregistered securities schemes 20 years ago, and they had ample opportunity to look at. I would be one of hundreds of thousands of such petitioners. They would they consult their own appetite for going after them in courts, which they clearly have none for. They care about crypto, they don't care about trading cards and children's shows, pure and simple. They are exercising their discretion in who they go after.
And by the way, the actual definition that was posted above, from their official site, is what you'd call vague:
The Commission, on the other hand, does not require vertical or horizontal commonality per se, nor does it view a "common enterprise" as a distinct element of the term "investment contract."
You could see why, in the face of such vague and amorphous language, a ton of things could be considered "a common enterprise", so the assertion "Yu Gi Oh definitely doesn't have a common enterprise" is laughable. If the SEC wanted to, they'd argue that it does. The definition is extremely vague.
The pseudo-intellectual bullshit is actually when you refuse to have consistent definitions, and just drone on about various things. New-Age practitioners or post-modern feminist or other movements have done this. Requiring people to be clear and define terms that sound vague is a basic requirement in math, science, and general rational discourse.
That’s the same argument that makers of utility tokens made. As long as the items are useful, they’re not securities.
Any securities lawyer worth their salt will tell you that mere possible utility does not make something not a security. The distinction of “utility token” vs “security token” is not an official dichotomy. Something could be a utility token AND STILL be sold in securities sales.
For example, concert tickets are useful to attend a concert. But if you buy thousands of them, and scalp them, you aren’t doing it to attend a thousand concerts. You’re doing it to resell and make a profit. You have a common enterprise with the people putting on the concert.
Similarly if you buy too many utility tokens for you to conceivably use in the next few years, that could be a securities transaction by the Howey Test.
Look no further than LBRY case recently decided in SEC’s favor. I read it and spoke to the founder recently (randomly met him in a car shop LOL).
And I am not even talking about the Risk Capital test, used in California and a dosen other Western states, by which most Kickstarter campaigns are technically unregistered securities sales!
This is a non-statement. What does that even mean?
That's like saying "The USD is used as fuel for the US economy." Even talking about more crypto-concepts as gas fees doesn't negate this. It's not some "other purpose" and courts won't buy such disingenuous spins.
Ethereum is used to pay for transactions on its network. It is called “gas”.
What level of detail do you want?
People have a need to secure their transactions from double-spends and stealing etc. I personally think blockchains are a first-gen technology but the network requires ETH to pay for transactions. What is your point?
No, ETH is used to pay for transactions, the vast majority of which aren't "about Ethereum", but rather it is a general-purpose virtual machine that executes instructions in smart contracts, which can be for any general purpose, such as contests, or voting, or securing some assets, etc. So ETH has a lot of utility and is decentralized. That it's not a security has been a majority consensus of the SEC until Gary Gensler took over, and many commissioners including Hinman publicly said it: https://www.sec.gov/news/speech/speech-hinman-061418
But about whether it can never be considered a security? In theory I agree with you. Just because something has utility, doesn't mean it's not a security by the Howey test. Today the SEC says one thing (ETH is not a security). Tomorrow under different leadership they can turn around and say it is. Good luck convincing a court, though.
And Howey is just on the federal level! As I have already said -- most Kickstarter campaigns are actually unregistered securities offerings, according to the Risk Capital test of California and a dozen other states:
So "how it works" is whatever the system happens to come up with in court cases and precedents. The definitions vary from jurisdiction to jurisdiction and are vague as it is. After all, capital invested into anything is "put at risk", even if by the Howey test it's not. While in Singapore, the definition of security is a lot more narrow. And FINMA in Switzerland seems to have a much more sane system specifically for tokens:
That's because (as with the release of every new shitcoin) it's just a scam to raise money for the "investors" - by which I mean insiders - and dump it on retail.
A transparent blockchain with all visible and traceable transactions doesn't get anymore transparent than a blank-check shell company exit scamming retail after a merger that went down 99% and then disappearing.
The people operating the blockchains and exchanges aren't transparent. They're extremely secretive.
I consulted for a blockchain start up once. They raised money through ICO, did minimal product work, and spent most of the money on cruises and marketing to raise their token price.
So yes, the blockchain is transparent. It doesn't mean that much.
The problem with crypto was that non-crypto people got into it. It's all fun and games when you use crypto to pay for things like a currency but the second people start hodling because they speculate its value will increase it becomes a security.
While true it would be best if the SEC enforced rules the second they were broken, when have you seen a government agency act fast? It took a literal collapse of FTX for the SEC to get involved.
I can keep USD in a bank or money market account and get more USD out of it, just like I can for Solana or Ethereum. I'm currently earning like 3% on one of my accounts. It might not seem that way because we've had zero percent interest rates for so long and banks have had their rates at like 0.01% or something super low, but that doesn't mean it doesn't happen.
Also the value of the USD changes relative to other currencies all the time. There was a time where you needed 2 USD to get 1 British pound, but right now it's 1.25 british pounds for a dollar (i.e. the USD has increased in value compared to the british pound). There are people that make serious money just from trading between foreign currencies at the right time.
You mean if you invest your USD into a Money Market Account its able to generate a yield?
How can one sell a Money Market Account for more than they bought one for? The USD isn't generating a yield the Money Market Account is.
> There are people that make serious money just from trading between foreign currencies at the right time.
And if you advertise the GBP as a way for people to invest their USD on the premise that they can sell the GBP for more USD in the end I bet the SEC will not look fondly on you. There are also people that made bank on the stock market; doesn't make it not a security.
I wish the SEC would go after MM manipulation in the current stock market. Get rid of Fail to Delivers altogether and stop allowing obvious pump and dumps to prop up margins. But that is just me. as I'm not heavy into crypto.
Cryptocurrency is a threat to the consolidated power of the Central Banks. Yes, "they" will mandate that it be killed, or at least that it's illegal to exchange fiat currency for crypto or use it as legal payment for goods and services.
Cryptocurrency is a general threat to "society". It enabled a lot of bad actors and issues that did not exist before, and it is also in contrast to a lot of previous legislation created specifically to protect the average citizen. We should all treat it as a threat.
Name a single "bad issue" cryptocurrency enables that did not exist before. Not one that is now easier, but one that did not exist and is now possible, that would not be without them.
Ransomware. The ransomware economy is powered by crypto, did not exist before crypto, and would not exist without the key feature of crypto, that it allows transfer of money without KYC.
Ransomware is easier thanks to crypto, but it doesn't exist only because of crypto. It predates crypto.
"But the early ransomware attacks long predate cryptocurrency – the first recorded is thought to have taken place in 1989..."
"Without the existence of cryptocurrencies, ransomware would still be a big problem, says Nick Biasini, head of outreach at Cisco Talos. “If you go way back and start at the beginning of ransomware before it became the pervasive issue that it is today, it was actually not based on cryptocurrencies. The payment system was designed around gift cards or various other types of payment cards that you could operate.”[1]
"The first known attack was initiated in 1989 by Joseph Popp, PhD, an AIDS researcher, who carried out the attack by distributing 20,000 floppy disks to AIDS researchers spanning more than 90 countries, claiming that the disks contained a program that analyzed an individual’s risk of acquiring AIDS through the use of a questionnaire. However, the disk also contained a malware program that initially remained dormant in computers, only activating after a computer was powered on 90 times. After the 90-start threshold was reached, the malware displayed a message demanding a payment of $189 and another $378 for a software lease. This ransomware attack became known as the AIDS Trojan, or the PC Cyborg."
Agreed. And, btw, they are not going against token developers or miners but against companies that are profiting from selling securities without complying to the regulations and some times even wash trading them.
That's one of the great fantasies in crypto: "The geek shall inherit the earth"
There's no reason to believe banks and governments haven't been stacking crypto. The argument is that it wouldn't go unnoticed and large buys would drive up the price, but a well-run purchasing project could easily handle "small" purchases over a long-term, especially if the goal is control and not price speculation.
There is a US government mandate to kill violations of securities law. If "crypto" can't exist without crime, that's hardly the SEC's fault.
The SEC can, and should, go after ICO scammers, but there would be zero ICO scammers without the help of Binance, Coinbase, and friends allowing their illegal trade.
Why let COIN IPO in the first place? Nothing has changed really with cryptocurrency, rubes were more interested when COIN IPO'd than they are now. Did everyone cash out and now it's time to protect people?
> 111. As Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, “we are operating as a fking unlicensed securities exchange in the USA bro.”
From a cursory review, the Coinbase complaint doesn't include the Coinbase "Compliance Officer" declaring that they are running a "fking unlicensed securities exchange in the USA bro", so they are already off on stronger footing than Binance.
Frankly I think anything crypto-related is very unpleasant to discuss on HN (by the way why is this site called HN? Why not just "American tech news"?)
Any sign of damage done to crypto industry is met with fierce jubilation you could only compare to comments on fresh Ukrainian casualties in some Z channel in Telegram. There is zero interest in understanding the specifics. The most embarrassing, pedestrian, knuckle-dragging cases against privacy, straight out of Four Horsemen of Infocalypse, are trotted out (same as we're increasingly seeing wrt putative risks from AI; oh no, power too great for peasants to handle, we need regulation!).
I understand the extreme seediness of crypto and affiliated organizations, the intrinsic association with crime, obnoxious promotion, NFT era, SBF nonsense and more. But the degree of intellectual bankruptcy in HN discourse is at least equally repulsive and strongly suggests that there's a lot of jealousy underneath all this schadenfreude and pretense of indignation.
I think the world should have some slack. It should be hackable. There must be a crack in everything, because systems of power go bad over time. If Americans have such complete religious faith in their system, that is their choice. They attempt to enforce extraterritoriality of their regulation a bit too often, though, and they are moving in lockstep with other major hubs of power.
Crypto has enabled me to survive and escape a bad place, at least once. It allows people in countries less functional than "the West" live with a modicum of dignity, as is sometimes discussed – and met with incurious "scrutiny" to the tune of "BBC article or didn't happen" – here [1] [2]. It would be a shame if in another decade the idea that you, a regular citizen of the world without any special authority, could remotely transmit value to other people completely at your own discretion and in complete privacy (so long as you follow certain rules), without say-so of appointees of Washington or Brussels or Beijing, becomes as absurd as going outside without an always-on tracker device.
"Since at least 2019, through the Coinbase Platform, Coinbase has operated as: an unregistered broker"
Anyone else have a problem with the latency of our government? This is a law from 1934 that the SEC exists to enforce. You'd think they be a bit better at the job. This seems very slow to respond.
In 1934, things moved slowly. Scaling was entirely manual and mostly linear, if you were an unregistered broker, to handle a thousand times more transactions you needed to hire approximately thousand times more brokers, and changes like that would get noticed quickly. Someone in 1934 might have been proud of how fast-paced they could operate, given that in the preceding two decades the telephone had exploded in popularity. They could even place a trans-continental phone call, and communicate with someone a thousand miles away; imagine that!
Governments designed and tested in the 1700s and 1800s should not be expected to anticipate and seamlessly cope with technological change that is accelerating faster and faster.
The USA’s governance system is literally designed by the founders to make slow change. They were fearful that quick legal/governance changes would have less than desirable consequences.
I don't think the 1934 point was where the latency came from. The question is why did it take 4 years for the SEC to bring action against Coinbase. They weren't exactly hiding their behavior. At best, it seems that the SEC was waiting so that they could claim more damages?
We don't know exactly what communications SEC and Coinbase have had over the years.
We do know Coinbase hired lots of very expensive lawyers to handle that relationship, so this wasn't exactly a surprise to the company. They've been stalling and preparing for years.
Because before FTX, the political mood was laissez-faire. And now it is "bring me their heads".
Say what you like about crypto, coinbase have been 200% upfront, honest and compliant in their businesses and the SEC were A-Ok with that until 1 month ago.
I think the feds use a different definition of "good at the job" than you do. They are slow, but they are inexorable. They very rarely lose once they bring charges.
Perhaps this should change. I can understand taking a while to decide to bring charges against Coinbase, but ten years?
They have given very clear guidance for years: basically all cryptocurrencies are securities. Conbase just didn't like what they said.
Besides, it's not the SEC's job to give free legal consultation. Nowhere in our legal system does the government have an obligation to send experts to consult with violators to help them stop violating the law. These companies have lawyers who are supposed to keep them in compliance.
It’s like having that policeman warn you that something you’re doing is illegal, but he won’t tell you what - just that if you keep driving he’s going to pull you over and give you a ticket.
>Rather than initiate new rulemaking, Chair Gensler has repeatedly stated through speeches and testimony that the vast majority of digital tokens are securities, and has asked issuers and exchanges that offer, sell, and trade them to come in and register. We disagree that the majority of digital assets are securities. For those digital assets that are securities, registration under the current rules is, for many market participants, either not possible or not economically viable given the associated and unnecessary compliance burdens. Additionally, when existing regulations are unworkable, some market participants may be less willing to invest the resources necessary to follow the rules. Failure to resolve these shortcomings leaves investors unprotected due to a lack of regulatory clarity, prevents market participants from leveraging the efficiencies new technology can offer, and materially impairs capital formation in the blockchain technologies that underlie digital assets. This is wholly inconsistent with the SEC’s mission.
The SEC has been clear that most cryptocurrencies are securities and must be registered. Coinbase was well aware of this. There is no confusion and no lack of clarity. Coinbase just doesn't like the rules.
They have no obligation to give legal advice, free or otherwise. It is the job of a company to keep in compliance, not the job of the SEC to be their outside counsel. Write to your senator if you think this should change.
This is all hypothetical, since the SEC has given clear guidance for years. Coinbase ignored this guidance because they didn't like it.
you seem very stuck up on legal words I think. ANy normal thinking human realize the one enforcing rules, must obviously also tell what rules are ok or not
How should this "outside council" learn the rules, if they can not ask the ones making or ruling with them? You are just shifting the problem down one notch
> ANy normal thinking human realize the one enforcing rules, must obviously also tell what rules are ok or not
I do agree that things should be this way. In some countries, it is much more clear. In the US, it is very much not like this. Nobody can list everything that is unlawful. You can only pay for opinions.
It sucks, but it's not some unique quirk or the SEC or whatever.
In the US, the police have no requirement, legally or otherwise, to hold your hand in avoiding a crime. Police can literally advise you how to commit a crime, and it is on you to not do so. The onus is on you to not be a criminal. Sometimes that means being extra careful. Sometimes that means hiring an expert lawyer and getting them to come up with a regime, and in fact that's like their whole job other than litigation. But your expert lawyer can be wrong.
Coinbase hired expensive lawyers who told them "we think if you do it this way it's not a crime", the SEC disagrees, and it's up to the courts who is correct.
Arguably the SEC doesn't actually make the rules, and is only tasked with enforcing them, and thus they can't actually give advice on the law because their interpretation of the law might not be correct!
You are mixing up the general moral of someone making a law vs some specific country though.
anyhow, then they can of course give you advice what NOT to do, and will do. Otherwise, as i said, how can they enforce something unless they know about it? I don't even get your point, it honestly sound quite stupid ?
>Arguably the SEC doesn't actually make the rules,
Sure, but they should at least tell which rules they follow? I don't get how so many people on HN seem to favour SEC here, a community of programmers who use logic at work
A policeman's job isn't to distinguish definitely legal from questionably legal.
Their job is to find some portion of things that are definitely illegal. They don't need to have comprehensive knowledge of the law, just enough to know that the things they are enforcing against are definitely illegal.
If you're asking the police whether something you're doing is definitely legal, you're asking the wrong person.
I understand your logic, however while some officers try their best to know the law, and some are very familiar with the law, they are most definitely not accountable to knowing the law and they are most definitely not responsible for educating you on it. Further, they have authority to lie to you about the law. (At least in US.)
> They have given very clear guidance for years: basically all cryptocurrencies are securities.
Please point out a single time where Gensler makes a claim even remotely similar to this. The SEC does literally everything else except for giving guidance on which cryptocurrencies are securities.
And what are you to do, as an exchange trying to maintain compliance, when the CFTC says assets determined to be securities by the SEC are, in fact, commodities.
It’s more like asking a cop if you can sit somewhere and they give you a look and won’t tell you, but 3 years after you sit down they book you for trespassing.
FYI, that is 100% something a cop can do in the US. They have no obligation to warn you not to commit a crime, and are legally allowed to even encourage you to do a crime. They can provide all the means and motivation to do a crime, and if a jury can be convinced that you would have crimed anyway if you had those resources through other means, it's not entrapment.
I think a reasonable person would agree that if you ask a cop if you can do something and they won't answer but then take enforcement action against you later on, that would be bullshit.
We can hope that SCOTUS tears Chevron apart this term. Then Congress will be forced to actually do its job, something it hates doing because it puts responsibility for decisions in its box.
Ah yes, because the body that can barely get through a few laws every month surely will handle the utter deluge of work when they have to write all the petty little details of any recommendation by any portion of the federal government on any little issue.
The point of overturning Chevron is entirely to handicap the government in it's ability to regulate anything.
The fewer the laws they get through the better, especially when every bill they pass seems to be a conglomeration of 10-20 other bills which should be considered, written, and voted on separately. The point of overturning Chevron is to get rid of a current bias toward accepting the even-nonsensical interpretations of law by unelected officials over clear reason and sense.
It's not that weird, its there job is to enforce not teach. The FDA, EPA, etc set the rules and enforce those rules. They do not hold a company's hand following those rules.
Just because we decided it that way arbitrarily, right? It's not some natural law that this is how it should be, that the rule makers can't possibly explain rules, only enforce them. I mean, you could make the same argument about the IRS and Congress with respect to taxes: it's not their job to make it easy on us, just to punish us when we make a mistake on our tax returns. I mean, I guess... But just because we wrote the law that way. Plenty of other places have put 2 and 2 together and figured out that if the goal is to collect taxes and not to enrich TurboTax, then they can make the process dramatically simpler.
Similarly, if your actual goal is to reduce the occurrences of "bad behaviors" (which is presumably the whole point of creating these rules to begin with), then it doesn't seem that unreasonable to have someone try to lay it out clearly, right? If for no other reason than maybe a bunch of people negatively affected by these behaviors would have been spared since there wouldn't have been this grey area to operate in for so long? That's who we're ultimately doing this for, right? The public that is hurt by securities that are misrepresented? Now, if your goal is to punish people, then yes, the current system makes more sense.
In an ideal world, regulatory agencies would also spend significant resources on education. Unfortunately many of them don't have enough resources for rule making and enforcement, their primary mandate. However, there are plenty of educational resources outside the agencies. There are lawyers, accountants, professors, consultants, etc who are experts that you can hire. There are classes available, in some cases entire degrees.
The regulations are designed to protected the general public from companies doing the wrong thing in the name of profit even when the intentions of the people running those companies are good. It's a check on the dark side of capitalism. Are sometimes those rules too complicated or too overbearing? Yes! Are there also people out there just to improve that? Yes, and some of them work in the regulatory agencies!
It's a messy, frustrating process that on the whole seems to be doing a decent job. Most people in US have access to clean water, generally don't have to worry about tainted Advil, or worry their life savings are going to evaporate by just storing it in a bank.
I don't know enough about the specifics of the Coinbase suit yet, but the crypto industry in general seems an awful like the banking industry of the 1800s and early 1900s in the US. During that time there were plenty of companies and people doing the right thing, but there were enough bad actors that something needed to be done. The SEC was born.
This is very likely fallout from FTX, but not because of some nefarious plot against crypto but rather the SEC realized there is a financial sector they need to focus on more closely. A SEC lawsuit is also a starting point for a serious discussion, not a criminal indictment. If the SEC believes there has been criminal behavior, they refer that to the DoJ. The likely outcome if Coinbase has been trying to do the right thing is some sort of settlement (fine) + direction on what to do differently. Then Coinbase will continue on like normal with whatever changes the SEC wanted.
There are, regardless of regulation, from aerspace over drugs to finance, tonsbof law firms, counsultants and experts out there explaining the rules and how to follow them.
The problem is that a whole generation of wannabe start-up bros, starting with Uber the latest, just cannot be bother with learning and respecting rules it seems. Most of those flog to crypto lately.
Not that I have a ton of experience on this, but from what I've seen, lawyers do not generally have a unified opinion on stuff like this (stuff that has never been litigated on in general). A lot of them will tell you "this is what I think, but look, this is untested."
To separate this from the emotionally-charged subject for a second: just look at Google vs. Oracle. It took over a decade to decide whether APIs are covered by copyright or not. And the reality is that that was closer to a coin toss than any of us would like to admit, since it was trying to apply a law that in no way imagined something like APIs to APIs, and relied heavily on the judge/etc being able to wrap their heads around it. The verdict could have easily gone the other way. When it comes to how regulations apply to new technologies, the uncomfortable truth is that there is no "objective truth" to the law, and unfortunately comes down more to how much money the parties throw at the problem and legal process. I am sure on the Oracle side there were plenty of people talking just like you: "these people don't respect copyright and flagrantly copy APIs that are obviously protected IP and they think just because they're in hippy open source land the law doesn't apply to them". The reality is that until the verdict, there effectively was no rule around copyright and APIs.
For an opposite example: look at the famous case of Diamond v. Chakrabarty (1980). The patent agency rejected an application for a genetically engineered bacteria that could break down oil, saying you can't patent living organisms. It went to the Supreme Court, that decided 5-4 that they could. Are you going to sit here and tell me this was obvious from the beginning? Given that the patent agency had the opposite opinion than the Supreme Court, and that the Supreme Court was basically split 50/50 on the decision? Do we think they made the right decision given no background in biology? Do we think Chakrabarty was a wannabe biology bro that didn't care about the law, given that almost every lawyer at the time would have told you was commonly accepted did not allow patenting living organisms?
* > tonsbof law firms, counsultants and experts out there explaining the rules and how to follow them.*
Hopefully you see now that a ton of those law firms are out there telling you "I think we can win on this, it has happened many times before, and the reality is that law really isn't written until we make our case".
If that's what you took away from this, you must have not read it. I have given specific examples from case law that show that the law often just isn't defined in these new areas, and there is actually nothing better than "I think we can win this". The law is not a secret ledger that has the true rules that account for all future scenarios, that you try to guess from the outside, and can get right or wrong. The law often just comes down to making your case. I know that's not satisfying, but it is the way it is.
I mean, the US federal government doesn’t have an internally consistent stance on cryptocurrency regulation, with different agencies in conflict as to whether a securities or commodities regulatory framework applies. And no consistent clear determination has been made. It’s currently effectively impossible to get actionable legal advice about how to follow the rules, which is different to the situation with the FDA, EPA, et al.
You could say that the conclusion is then that it’s all illegal full stop and that all cryptocurrency related businesses in the US should cease operations immediately. But if that’s the case, you’d hope that would be clearly expressed somewhere. Right now, the rules (or rather, the probabilities of facing adverse legal action) are being inferred after the fact by analysing patterns of enforcement action.
Crypto isn't some completely new thing that needs a new set of regulatory rules. The tech behind it is new, but it's really just another currency for the most part. Are there some differences? Yes! But it is not so different that most of the rules either don't apply or it's hard to see how they apply.
FDA is actually pretty collaborative with pharma companies. But also pharma companies’ business models aren’t entirely dependent on circumventing regulation and they aren’t openly combative with regulators.
Only because they found it much more effective to "collaborate" on the regulations such that they'd be allowed to label opioids however they'd like and addict millions of people in one of the biggest health crises in the history of our country.
"Only because?" Strongly disagree. I think it's actually because there are human beings who work at FDA who, like all human beings, have had loved ones suffer, get sick, or die. Everyone (presumably) wants safer and more effective treatments for sources of suffering, and e.g. interpreting drug trial data is really fucking hard, even for the people who create the drugs.
Separately, yes, there are also instances of straight-up corruption. It's totally divorced from reality to suggest that collaboration is "only because" of corruption though.
I believe people at the FDA and NIH are allowed to have financial interests in the drugs they regulate[0]. I'd bet the SEC doesn't permit that. That would probably explain the difference.
The "only because" relates to why they don't fight the regulators. As in "why fight them when you can have a revolving door agreement where they get cushy jobs in your company after they leave the FDA". In other words, I am not implying that there aren't other reasons for collaboration with the FDA, I am implying that there isn't a culture of "fighting regulations" because there is instead a culture of manipulating regulations. This in no way implies that there isn't also good collaboration.
No argument about that, but Coinbase has been begging for a clear set of rules to follow for ages. Now SEC is suing Coinbase for not registering with SEC as a broker/exchange, but the SEC itself wouldn't let them register because they(the SEC) couldn't decide if crypto is a currency or security. The whole thing is a political fallout of the FTX crisis.
No, they haven't, they've put out Press Releases to that effect.
But when it actually comes time for court filings, which are what really matter, they instead acknowledge that they know exactly what the rules are, but that they "disagree". And why do they disagree? "because for numerous tokens, regulation would require undue effort or not be financially viable [for Coinbase]".
"Your rules are not profitable for us", essentially.
enforce what exactly? The rules are made up. Gensler is truly a clown, he doesn't have a clue what he is talking about. Look at this, that was just one month ago, about Ethereum, the second largest and he cannot give a clear answer https://twitter.com/sassal0x/status/1648338351832064003
So again, what shall the SEC enforce exactly? If you don't see the endgame here ...
“I’m trying to interface my sewage pipes with the municipal drinking water supply, but for some reason the water company are being real dicks about it”
Especially when your primary product and money maker is regulatory arbitrage, you better hire an army of lawyers to defend yourself against situations like this.
If you're commenting on this without even having read Coinbase's 32-page Petition for Rulemaking [0] from July 21, 2022, which is extensively footnoted about how the existing securities laws cannot apply to cryptocurrencies, so new rulemaking is needed, please stop and read it before you reveal your ignorance.
The SEC's failure to respond to this as required by law is the subject of Coinbase's lawsuit against them from April.
It's just simply and outrageously false to pretend there is some clearcut way Coinbase could have registered, or even been sure which assets the SEC was going to consider securities.
There isn't, and the SEC has already been sued about their failure to provide it.
> Rather than initiate new rulemaking, Chair Gensler has repeatedly stated through speeches and
testimony that the vast majority of digital tokens are securities, and has asked issuers and
exchanges that offer, sell, and trade them to come in and register. We disagree that the majority
of digital assets are securities. For those digital assets that are securities, registration under the
current rules is, for many market participants, either not possible or not economically viable given
the associated and unnecessary compliance burdens.
"The SEC has told us the rules. We don't like the rules, and the SEC refuses to rewrite the rules for us."
> There isn't, and the SEC has already been sued about their failure to provide it.
Is https://www.courtlistener.com/docket/67273468/in-re-coinbase... the suit in question? Based on the petition for rulemaking you linked, the SEC's response, and Coinbase's reply, there is a bait-and-switch going on here. Coinbase is asking for a change in how regulations apply to cryptocurrencies, while trying to position this as "merely" asking for a clarification. Or, in short, the rules are clear, Coinbase just doesn't like them.
Show me a big company and I will show you an individual who broke some law while working there. A few bad apples don't make the whole company culpable as long as the said company takes measures like giving proper training and firing the bad apples.
Do you think they're below the law? The fact that the business is so illegal that it's impossible to bring it into compliance just goes to prove the SEC's case. The only
Scams like pump-and-dumps and wash trading are rampant in cryptocurrency. The markets for cryptocurrencies are unfair by design. The fact that these securities can't be registered is the system working as intended.
>There isn't, and the SEC has already been sued about their failure to provide it.
Anyone can sue anyone for any reason. The feds, however, almost never lose.
One thing I think I have learned from all this is the limited power of lobbying.
Despite throwing billions of dollars at lobbyists and campaign contributions over nearly a decade, no legislation of any note was ever passed to protect crypto.
It's almost impressive, although I don't know if it could be chalked up to the complete ineptitude of the crypto industry.
yea, people assume lobbyists have special powers. look how much worse 'big tobacco' regulation has gotten over past 50 years despite endless lobbying by tobacco companies.
On one hand USA & UK do anything to stop bad guys from stealing their people's money and on other hand they welcome corrupt, drug lords, oligarchs and criminal billionaires with open arms.
I hate bad guys no matter where they are from but that's clearly not how USA, UK, Canada, Australia and newzealand have been acting.
Whatever you think of Crypto (and everyone thinks it is either cancer or a miracle) Congress, not the SEC should be defining what a security (or commodity etc) is. Not just a SEC land grab. Especially as they were so cool with everything pre-FTX...
I don't mind politicians taking expert advice (in fact I am very in favour). But it is elected leaders, not just "specialists" who have to have final say on our laws. I think we agree about that right? The SEC must obey congress, not the other way around.
I am sympathetic, but then where will we get these experts? Who will pick them? What happens when they disagree? These are all the standard issues with the idea of replacing democracy with expertise, though I would much prefer we do that at the lower levels even if we don't give them final say...
I agree, it's a complicated mess and you'll always have to battle around the reality that is human nature. I think this and yesterday's news do highlight that the SEC are capable of making the right decisions though.
There is 80 years of case law in the US about what is and isn’t a security. The SEC is applying the 80 years of case law history to this action. It’s not an SEC land grab.
If these actions were always illegal why have the SEC waiting this long to act? Why did they interview all these people, promise licenses, encourage them etc? Why wine and dine SBF?
If people think Crypto should be banned, make the case. But let's pretend it is banned, that's just silly...
The SEC just lost a ruling (and got roasted by the judge) when they tried to suppress the comments of the previous SEC head explicitly saying Crypto is not a security.
Not to mention the fact that coinbase is a public company, so the SEC allowed them to go public while having a full understanding of their business - an endorsement of what they're doing if you will, yet today it's suddenly illegal. How does this reflect on the SEC?
Really? The Sec is 100% infallible deciding crypto is a security but also 100% too-dumb-know when it evaluates a business as fit for public investment?
In the process of going public, the SEC is not evaluating if the business model of a company is legal, it is evaluating if the company is exercising the proper financial disclosures to market its securities to the public. There are a bunch of publicly traded cannabis companies that have business practices that are illegal under federal law, and the SEC doesn't care. What matters is that the companies disclose to the public that the risks of investment include federal regulation and that their annual disclosuers.
For instance, curaleaf, the largest cannabis company includes this bit:
"The Company derives its revenues from the cannabis industry in certain states of the U.S., and the industry is illegal under U.S.
federal law.
The Company is involved (through its licensed subsidiaries) in the cannabis industry in the U.S. where local state laws permit such activities. Currently, its subsidiaries and managed entities are directly engaged in the cultivation, manufacture, processing, sale and distribution of cannabis and hold licenses in the adult-use and/or medicinal cannabis marketplace in the states of Arizona, Arkansas, Colorado, Connecticut, Florida, Illinois, Kentucky (hemp only), Maine, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Utah, and Vermont; and have partnered with an accredited medical school and obtained a “clinical registrant” license in Pennsylvania. In addition, the Company is indirectly involved (through management services which include the use of the “Curaleaf” brand and retail and cultivation and production operations, human resources, finance and accounting, marketing, sales, legal and compliance support services) in both the adult-use and medical cannabis industry in the states of Maine and Arkansas."
Yeah, they're making the case, because the case has to be made, because it is NOT settled law.
Personally, I think however the case ends up, congress should be deciding these things, as I said above. But people need to stop assuming bringing a lawsuit is the same as winning one...
All part of the FedNow project that they are pushing in the US and (trying) to ban crypto, just like the Reserve Bank of India and UPI in India tried to do.
Eventually, they will issue their own CBDC on top of FedNow.
And with CBDC comes built-in restrictions on where and how the money can be spent and I would be very surprised if "exchange for bitcoin and vice versa" is allowed.
Wish they would you know go after congress for the consistent and blatant insider trading violations but nah gotta protect the consumers from themselves.
