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

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

#301

Post by Lazare » Wed, Sep 08, 2021, 1:30 PM UTC

mthoms wrote: post #210

Lazare wrote: post #191

Earlier quoted context omitted.

As in, the interest you might earn on a savings account? The rule is basically: "If you're giving someone else money in the hope of getting more money back later, it's a security UNLESS it fits into a list of exceptions, or if it meets the criteria to be added as a new exception." So a savings account would absolutely be a security, unless it fits into one of the recognised exceptions. One of those exceptions is the…

Very helpful, thanks. It sounds like you're saying the banks get a special carve-out to provide this service simply because the regulator is different. On a fundamental level though, I still don't see the difference. I do have to disagree with the last paragraph though. Consulting with relevant regulators when the legislation is unclear (or non-existent) seems like the opposite of a red flag.

Not exactly. After many, many decades of frauds, schemes, panics, and crashes, harsh experience has led to a regime where nobody can do anything without a very explicit carve out. In tech terms, it's a default "deny all", with a white list of "things which are not thinly disguised ponzi schemes", not a default "allow all" with a black list of "things which have been shown to be thinly disguised ponzi schemes".

So yes, banks are one of the exemptions, because they have their own regulator (which is one way to get on the white list).

> Consulting with relevant regulators when the legislation is unclear (or non-existent) seems like the opposite of a red flag.

No, the red flag is that Coinbase (correctly!) understands that the SEC is the relevant regulator. Your local credit union does not go to the SEC when they want to offer a new type of savings account because the SEC does not regulate credit unions. Which is good, because the SEC is only competent to apply securities law, and securities law doesn't allow savings accounts.

So yes, absolutely you should consult with the relevant regulator, and if the relevant regulator for you is the Office of the Comptroller of the Currency (who regulate banks), they're probably going to cheerfully sign off on your savings account idea; they like savings accounts. But for Coinbase, it's not the relevant regulator, because they're not a bank. Nor do they seem to fall into any of the other many exceptions and regulatory schemes so...

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

#302

Post by cryptica » Wed, Sep 08, 2021, 1:33 PM UTC

I normally don't like the idea of an institution which aims to protect people from their own poor decisions...

But in our current, highly artificial, manipulated, money-printing economy, I think the SEC should just go ahead and shut down all the big crypto projects. If a crypto project can be shut down easily, it should be shut down. The SEC should also try to shut down all these so called 'Decentralized Exchanges'; if a DEX can be shut down, then it means that the DEX was not decentralized enough.

There are projects in existence today which are truly decentralized and would be impossible to shut down but they are not getting any attention because these huge crypto projects are hoarding all the newly printed money which they claim to be fighting against.

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

#303

Post by darksaints » Wed, Sep 08, 2021, 1:40 PM UTC

Lazare wrote: post #191

mthoms wrote: post #175

Earlier quoted context omitted.

Excuse my ignorance but how is that any different from "interest"?

As in, the interest you might earn on a savings account? The rule is basically: "If you're giving someone else money in the hope of getting more money back later, it's a security UNLESS it fits into a list of exceptions, or if it meets the criteria to be added as a new exception." So a savings account would absolutely be a security, unless it fits into one of the recognised exceptions. One of those exceptions is the…

Coinbase's Lend program actually would be subject to other existing regulatory regimes. For example, the lending of SEC-regulated securities like stocks is not regulated by the SEC, it is regulated by FINRA. The Coinbase CEO notified the SEC, as they would be expected to as a SEC-regulated brokerage and publicly traded company, but their expectation was that the accounts would regulated by another entity, presumably the FDIC or FINRA.

The whole situation smells of a turf war between regulatory agencies, which is entirely in character for the SEC. They've been doing the same shit for years with the CFTC. You're no longer allowed to trade forex using the same account that you trade stocks with...not because the SEC regulates forex, but because they want to regulate forex, and are trying to strongarm the CFTC into ceding it's jurisdiction by crippling the forex market. This is plainly another turf war play, trying to grab territory that is far more cleanly regulated by FINRA.

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

#304

Post by tw04 » Wed, Sep 08, 2021, 1:40 PM UTC

JumpCrisscross wrote: post #296

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!

> the capital is not in theory at risk The capital is in theory at risk. The DeFi protocol could get hacked. Coinbase could get hacked. Coinbase could steal your money. Coinbase could go bankrupt. The fact that their marketing leads reasonable people like you to compare Lend to a savings account with no risk, even in theory, is the choking canary of the mess.

Sure, they want to rewind to a time when your bank account was unsecured and banks themselves had 0 regulation. Because it's a heck of a lot easier to make money when you can take massive risks with other people's money while lying to them and claiming there's no risk at all.

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

#305

Post by [deleted] » Wed, Sep 08, 2021, 1:45 PM UTC

ac29 wrote: post #39

seehafer wrote: post #32

Earlier quoted context omitted.

Are the other companies already providing lending services public? Public companies get orders of magnitude more scrutiny from SEC relative to private companies.

Other US companies providing similar products include Gemini, Kraken, and BlockFi. I dont think any of them are public. BlockFi's lending product has already been banned by several state regulatory agencies, but if they've been sued or warned by the SEC, I dont think thats been made public.

[deleted]

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

#306

Post by anonymoushn » Wed, Sep 08, 2021, 1:52 PM UTC

tylerhou wrote: post #198

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!

I don’t understand how you can make a profit larger than the risk-free rate of return without at least some risk; i.e. any risk free profit should be arbitraged away. If Coinbase has truly found risk-free profit it would be more profitable to sell it as an investment to some hedge fund, not give away free returns to retail.

The risk-free rate in this sector is substantially higher than 4%.

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

#307

Post by tgtweak » Wed, Sep 08, 2021, 1:55 PM UTC

I think it comes down to one simple thing: Is there sufficient securities and disclosures in place for the financial vehicle (which looks a LOT like a bond). Saying "hey why can't we do what all those other (unregulated) exchanges are doing!!" is not a valid argument in the eyes of a regulator. I don't think any of coinbase's current clientele would be using coinbase if it wasn't a regulated compliant solution. You make your bed and you sleep in it.

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

#308

Post by [deleted] » Wed, Sep 08, 2021, 1:57 PM UTC

JumpCrisscross wrote: post #296

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!

> the capital is not in theory at risk The capital is in theory at risk. The DeFi protocol could get hacked. Coinbase could get hacked. Coinbase could steal your money. Coinbase could go bankrupt. The fact that their marketing leads reasonable people like you to compare Lend to a savings account with no risk, even in theory, is the choking canary of the mess.

[deleted]

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

#309

Post by corey_moncure » Wed, Sep 08, 2021, 1:58 PM UTC

tw04 wrote: post #304

JumpCrisscross wrote: post #296

Earlier quoted context omitted.

> the capital is not in theory at risk The capital is in theory at risk. The DeFi protocol could get hacked. Coinbase could get hacked. Coinbase could steal your money. Coinbase could go bankrupt. The fact that their marketing leads reasonable people like you to compare Lend to a savings account with no risk, even in theory, is the choking canary of the mess.

Sure, they want to rewind to a time when your bank account was unsecured and banks themselves had 0 regulation. Because it's a heck of a lot easier to make money when you can take massive risks with other people's money while lying to them and claiming there's no risk at all.

The inverse take on this is that entrenched rich interests made all their money during such periods and have now used regulation to "pull up the ladder behind them". People who are foolish with their money will always find a way to lose it.

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

#310

Post by plainnoodles » Wed, Sep 08, 2021, 2:00 PM UTC

JumpCrisscross wrote: post #296

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!

> the capital is not in theory at risk The capital is in theory at risk. The DeFi protocol could get hacked. Coinbase could get hacked. Coinbase could steal your money. Coinbase could go bankrupt. The fact that their marketing leads reasonable people like you to compare Lend to a savings account with no risk, even in theory, is the choking canary of the mess.

It's even more obvious when you flip the relationship around. What's it called when your broker lends you money, at a fixed interest rate, for you to then go and invest in risk assets?

It's a margin loan. Which I hope I don't need to say is NOT risk-free.