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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

#341

Post by vmception »

JumpCrisscross wrote: post #298
vmception wrote: post #262

Earlier quoted context omitted.

Read the securities act for once. The exceptions make the rule. Especially the big glaring exception for securities maturing in less than 270 days being completely exempt from the act no matter the nature of the transaction. There is a difference between excepted practice, regulator musings, and using a plain reading of the law no matter what people think. Protip: the regulator has no idea which part of the law you a…

> securities maturing in less than 270 days being completely exempt from the act This is false. Commercial paper (not any security) maturing in less than 270 days is exempt from registration . (Like shares in private companies.) The other provisions of the Securities Act of 1933, as amended, still apply.

An exemption from registration is functionally an exemption from most parts of the act.

Sure, don't start manipulating your market or front running everyone.

But for me that's enough. Everyone can issue to everyone and everyone can trade. That's what we're going for. And if you believe that means the SEC can still police and protect gullible easily swayed people, isn't that what everyone wants? That's a perfect medium.

The act does not mention commercial paper, it is clear that the purpose of the exemption is to not disrupt the trade of rich people in the commercial paper market. Even more reason of ignoring the commercial paper assumption and corroborating musings of the regulator. People are just afraid of challenging it because so much money is involved and they don't want to to take a risk as an issuer which typically requires a relationship with the regulator, and a relationship with the investors, and a way to actually make an attractive enough return. Markets weren't fast enough for that most of the time, now it is. Its ripe for disruption and challenge.

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

#343

Post by omarhaneef »

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…

Not a lawyer here, but if I just apply the Howey Test based on my own intuition after reading it on investopedia(1), I haven't availed myself of the full range of arguments that the professionals apply.

I would not, for instance, get this conclusion: https://corpgov.law.harvard.edu/2020/06/14/court-holds-that-...

(1) https://www.investopedia.com/terms/h/howey-test.asp

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

#344

Post by wantsanagent »

rmah wrote: post #313
dustintrex wrote: post #71

Earlier quoted context omitted.

Agreed, and this line pretty much sums it up: > Customers won’t be “investing” in the program, but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship. "Give me money for a fixed period of time and I'll pay a guaranteed return on your principal. No, it's not an "investment", you're just lending it in connection with our existing relationship!"

From the information that Coinbase has given, it's no more an investment than a savings account is. More importantly, it's not a security since you can't sell your loan to someone else.

They can't make this argument though because FDIC and Banking regulations are even more restrictive and they arn't (yet) a bank.

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

#346

Post by slavboj »

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…

The entire point of having communications with your regulator is that you get to hear their reasoning. "I checked wikipedia and it seems like it might fit" is not how highly regulated industries work.

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

#347

Post by vmception »

ternaryoperator wrote: post #105
onlyrealcuzzo wrote: post #68

Earlier quoted context omitted.

It's also like saying - I can't believe they're not letting us operate an Atlantic Slave Trade - because of some supreme court cases from decades ago. Why should the decades matter? Supreme court cases matter...

That's a very poor analogy. It's inflammatory and disrespectful to put a trivial disagreement over investment classification on the same footing as the slave trade, and it's not factual either. Slave trade was not abolished by the Supreme Court, but by an act of Congress [0] and later by presidential decree [1]. [0] https://www.history.com/this-day-in-history/congress-abolish... [1] Emancipation Proclamation

Nobody cares because we understood the point.

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

#348

Post by quickthrowman »

anonymoushn wrote: post #306
tylerhou wrote: post #198

Earlier quoted context omitted.

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%.

It’s not risk free, US Treasuries are ‘risk-free’ and anything that pays a higher yield has risk. If it didn’t have risk, it would be arbitraged down to the risk-free rate.

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

#349

Post by dragonwriter »

darksaints wrote: post #329
dragonwriter wrote: post #315

Earlier quoted context omitted.

> the full expectation that the lending accounts would be regulated by another entity because they are not securities. Why do they think they aren't securities? Because they obviously meet the Howey test, and while they may have “expected” that they would be regulated by another body (and which and on what basis?), they obviously haven’t done what it would take to make them (for instance) FDIC-insured depository acco…

The Howey test doesn't apply here. If it's not securitized and it's not tradable, it's not a security. You can't trade a lending account...you can either hold it, or liquidate it. FINRA is an obvious choice. They already regulate securities lending, they already regulate margin accounts, they already regulate interactions with FDIC-regulated bank accounts.

> The Howey test doesn't apply here.

Yes, it does.

> If it's not securitized and it's not tradable, it's not a security.

Neither securitization nor marketability are requirements for something to be a security.

> FINRA is an obvious choice. They already regulate securities lending, they already regulate margin accounts, they already regulate interactions with FDIC-regulated bank accounts.

I suppose if Congress were writing a new law to specifically assign new regulatory authority for cryptocurrency lending accounts there might be an argument along those lines. But this isn't a matter of choice, its a matter of application of existing law, and if it meets the Howey test and no exception in existing law, such as assignment to a different regulator, exists, its an SEC-regulated security.

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

#350

Post by JumpCrisscross »

vmception wrote: post #341
JumpCrisscross wrote: post #298

Earlier quoted context omitted.

> securities maturing in less than 270 days being completely exempt from the act This is false. Commercial paper (not any security) maturing in less than 270 days is exempt from registration . (Like shares in private companies.) The other provisions of the Securities Act of 1933, as amended, still apply.

An exemption from registration is functionally an exemption from most parts of the act. Sure, don't start manipulating your market or front running everyone. But for me that's enough. Everyone can issue to everyone and everyone can trade. That's what we're going for. And if you believe that means the SEC can still police and protect gullible easily swayed people, isn't that what everyone wants? That's a perfect mediu…

> exemption from registration is functionally an exemption from most parts of the act

The commercial paper registration exemption exists because the Fed regulates it under the Bank Act. If the Fed won't accept your CP at its discount window, the § 3(a)(2) registration exemption doesn't apply [1].

And that aside, I personally think the question of whether Lend is a security is a red herring thrown out by Coinbase. According to Coinbase, the SEC said "they consider Lend to involve a security." Not that it is a security.

It is much more likely that Lend crosses over into bank- or broker-dealer-like activity. This hypothesis is strengthened by the SEC warning Coinbase and not Gemini, who are regulated as a trust company by New York, or Kraken, who are regulated as a bank by Wyoming.

> act does not mention commercial paper

The Securities Exchange Act of 1934, which created the SEC, absolutely does, under the section titled "exception for certain bank activities" [2].

[1] https://media2.mofo.com/documents/faqs-commercial-paper-and-...

[2] https://www.nyse.com/publicdocs/nyse/regulation/nyse/sea34.p...

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