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The SEC has told us it wants to sue us over Lend. We don’t know why

blog.coinbase.com

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Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#221

Post by koolba »

darawk wrote: post #196
staticman2 wrote: post #138

Earlier quoted context omitted.

You misunderstand the legal field if you think a lawyer should be given the benefit of the doubt when arguing on behlf of a client. Their job is to use the most persuasive propaganda they can get away with.

In this context, his job is to assess the legality of it before they create the product. Companies don't generally want to invest in building something they aren't legally allowed to market.

You’re mixing up what would be asked to the in house lawyers.

It’s not a binary: Is this legal?

It’s: Can we get away with this?

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#222

Post by TomSwirly »

darawk wrote: post #196
staticman2 wrote: post #138

Earlier quoted context omitted.

You misunderstand the legal field if you think a lawyer should be given the benefit of the doubt when arguing on behlf of a client. Their job is to use the most persuasive propaganda they can get away with.

In this context, his job is to assess the legality of it before they create the product. Companies don't generally want to invest in building something they aren't legally allowed to market.

For a counterexample, look at Uber, Lyft, or AirBNB, whose whole business models have consisted of flouting the law and quickly adjusting when caught.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#223

Post by paulgb »

Reason077 wrote: post #217
bjackman wrote: post #194

Earlier quoted context omitted.

I'm not an expert here but I read their argument as they don't expect this lending to be regulated as "investment" because the capital is not in theory at risk. So it's more like a savings account than an investment account. That's the impression I got from the article, but reading other comments in the thread it doesn't seem like that's an at all relevant definition of the term!

> "capital is not in theory at risk. So it's more like a savings account than an investment account." But I guess if you want to offer a "savings account" then you need to be a licensed bank and meet all the requirements and regulations that come with that?

Exactly. Capital lent is always at risk; effectively risk-free interest is an abstraction created by deposit insurance. (Which, too, could fail)

I don’t understand where DeFi yields come from, but I can tell you they’re not risk-free, for the same reason a physicist can tell you your perpetual motion machine doesn’t work without studying the blueprints.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#224

Post by dragonwriter »

rjknight wrote: post #76
uncomputation wrote: post #23

I actually initially wanted to be on Coinbase’s side here, but after a quick google of “Howey test” and reading even just the introduction on Wikipedia, I cannot imagine how they don’t see the SEC’s reasoning about Lend wrt Howey. If you want to argue that Howey does not apply or fight the decision/lawsuit, then fine. But feigning ignorance of something a (non-legal expert) programmer can connect the dots of instantl…

IANAL, but isn't the point of the Howey test that you're making investments with variable returns, where those returns depend on the efforts of others? If Coinbase is _guaranteeing_ you a 4% return, then there is no variability and the efforts of others are irrelevant. Coinbase could spend all of the money on JPEGs of my cat and they would still have to pay a 4% return to the people they borrowed the money from.

> If Coinbase is _guaranteeing_ you a 4% return, then there is no variability

Yes, there is.

There is just a cause of action if the variation happens. But, a big point of securities regulation is to protect before money is lost on illegal offerings.

> Coinbase could spend all of the money on JPEGs of my cat and they would still have to pay a 4% return to the people they borrowed the money from.

Well, they would still owe it. They’d also potentially be bankrupt and not have to pay it. Counterparty risk is real risk.

Corporate bonds can be fixed interest. Corporate bonds are definitely regulated securities, even when fixed interest. Therefore, being fixed interest does not suffice to make an investment offer a non-security.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#226

Post by dragonwriter »

rjknight wrote: post #102
habitue wrote: post #82

Earlier quoted context omitted.

They're guaranteeing it in the same way that when you buy a corporate bond with a 4% yield, you're guaranteed to get the money[0]. A bond is still a security. [0] Right? Counterparty risk!

But all contracts have some element of counterparty risk. Contractual guarantees are just contractual, nobody can give absolute guarantees of anything.

> But all contracts have some element of counterparty risk. Contractual guarantees are just contractual, nobody can give absolute guarantees of anything.

Yes...and? Are you trying to explain why, when other Howey-test factors are present, a fixed-return guarantee does not alter the determination that an offer is a security, or argue against it? Because it seems like you are trying to do the latter while actually doing the former.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#227

Post by TomSwirly »

rjknight wrote: post #76
uncomputation wrote: post #23

I actually initially wanted to be on Coinbase’s side here, but after a quick google of “Howey test” and reading even just the introduction on Wikipedia, I cannot imagine how they don’t see the SEC’s reasoning about Lend wrt Howey. If you want to argue that Howey does not apply or fight the decision/lawsuit, then fine. But feigning ignorance of something a (non-legal expert) programmer can connect the dots of instantl…

IANAL, but isn't the point of the Howey test that you're making investments with variable returns, where those returns depend on the efforts of others? If Coinbase is _guaranteeing_ you a 4% return, then there is no variability and the efforts of others are irrelevant. Coinbase could spend all of the money on JPEGs of my cat and they would still have to pay a 4% return to the people they borrowed the money from.

> If Coinbase is _guaranteeing_ you a 4% return,

No, they are _promising_ you a 4% return - hardly the same thing.

There is a non-zero risk that they'll go out of business. Companies go out of business all the time, sometimes with no warning at all. I worked for a company that was for a short time the largest private company in the world. Within two years, the SEC showed up one morning, and told all the traders to perform an orderly liquidation, because the company was insolvent.

If they go out of business, you might even lose some or all of your principal.

Ask yourself this: when savings rates are around 1%, why do they have to offer 4% if this is riskless?

Surely the efficient market hypothesis means that that extra 3% or so is what they perceive people will want for bearing this extra risk?

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#228

Post by aww_dang »

Although I'm not a fan of the SEC or regulators in general, I can appreciate how this falls under their purview. However, "Lend" is probably the least concerning thing about Coinbase in my view.

The process by which they list or decline to list altcoins on their platform is more troubling.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#229

Post by goodcanadian »

JohnJamesRambo wrote: post #142
jtchang wrote: post #65

I mean why not go after Coinbase? The argument that everyone else is doing it why not go after them doesn't hold much water. Sometimes it makes sense to go after the biggest fish first. Also, is Coinbase saying Lend isn't an investment contract? It sure sounds like one to me. Lend my crypto to Coinbase and I get a 4% return? I like the idea but it sure sounds like an investment contract to me.

To me it sounds like banks can’t compete and just keep the 4%, so now they have the SEC go after their competition that can. I don’t see the difference at all between a USD that makes (pitiful) interest in a bank savings account and a peg to USD that makes awesome interest in a Coinbase savings account. When I invest my USD with Wells Fargo bank they are converted to Wells Fargo Bucks that are tied to how efficient a…

Your "Wells Fargo Bucks" aren't classified as securities because Wells Fargo is a regulated bank (with all of the restrictions and protections that come with that). Coinbase is not a bank. It is as simple as that. This is really more like buying a corporate bond (which is a security) rather than putting a money in a savings account.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#230

Post by unyttigfjelltol »

seibelj wrote: post #31
peterbonney wrote: post #25

“We have no idea why the SEC intends to sue us! It is a complete mystery.” (Later in the post…) “All we’ve done is create a thing that people can trade which we are moving towards selling to investors against specific SEC advice to the contrary, but it is definitely not a security and as a result it is completely fine even though we have not complied with SEC regulations in any way with respect to it.” A mystery inde…

Coinbase wants to know the legal rationale as to why it's a security, but SEC is stonewalling them and goading them to get into a legal fight. The opposite of "talk to us, come in" that the SEC claims the crypto industry refuses to do.

Tactically, the SEC is doing the right thing. The law is Howey, not whatever justification for prosecution the SEC offers. Coinbase is trying to solicit from the SEC a different legal standard from Howey that Coinbase then can then divide by half, quibble over, nitpick, or whatever, all for the purpose of undermining the regulator and hamstringing the prosecution. It's a silly lawyer trick to gain ... American football analogy ... a step in a footrace with the regulator ... which might allow Coinbase to delay or blunt the complete spectrum of consequences that would follow from a wilfull, knowing, and intentional violation of securities law.

It's chess, and a version that lawyers generally don't play on such a large and open stage. The fact that Coinbase has chosen to do so looks like a 'caution' flag raising the question in my mind of why they would feel the need to do this. And to some extent I'm speculating.

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