Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

blog.coinbase.com

Post reply on HN
Print view View original

351–360 of 454 posts

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

#351

Post by dragonwriter »

thedufer wrote: post #338
darksaints wrote: post #329

Earlier quoted context omitted.

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. If it's not securitized and it's not tradable, it's not a security. Do you have a reference for that? Because that aspect doesn't sound relevant at all - the court case the Howey test comes from was about securities fitting your description (and, of course, the outcome was that they were considered securities). The Howey case actually refers to them as "investment contracts", whic…

> Because that aspect doesn't sound relevant at all - the court case the Howey test comes from was about securities fitting your description

The property sold in Howey was marketable and the service contract was held out to any owner, so while I agree that neither securitization nor marketability are requirements, marketability was present in the Howey arrangement.

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

#352

Post by SpicyLemonZest »

corey_moncure wrote: post #309
tw04 wrote: post #304

Earlier quoted context omitted.

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.

Coinbase is worth $50 billion. I like Brian Armstrong more than I like the typical finance CEO, but his company is definitely an entrenched rich interest, and if we treat them as a scrappy underdog we're going to let them get away with things they probably shouldn't. You should be skeptical on principle when a billionaire tells you that a financial regulator is being unfair to them.

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

#353

Post by chews »

darksaints wrote: post #300
justincormack wrote: post #156

Earlier quoted context omitted.

Securities lending, the repo market, is a large well understood and regulated existing market.

Securities lending is regulated by FINRA, not the SEC.

No, FINRA is an SRO, meaning they effectively police and audit the securities industry. FINRA takes guidance from the SEC and enforces the rules by way of fines, separate from any action of the SEC.

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

#354

Post by elliekelly »

olalonde wrote: post #132
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…

Correct me if I'm wrong but the bigger problem here seems to be that there is now way to "fight the decision" other than ignoring it, getting sued and maybe winning in court?

Going to court is the “fight”? And at any rate, the SEC, in my experience, is exceedingly reasonable. If you have a cogent argument to put forth they’re more than willing to hear you out. In fact, I’d say they much prefer to hear you out over taking you to court.

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

#355

Post by xivzgrev »

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…

At last, my hours of watching lawyer TV shows comes in handy!

A lawyer never assumes what the other side’s argument is, because your rebuttal hinges on exactly how their argument is constructed. Plus you don’t want to give your “opponent” ideas, nor do you want to essentially negotiate against yourself. If you lay out a defense, without a clear thing you are arguing against, the other side could just change their planned argument and say “ok THIS is our actual argument now”. The defense responds, not initiates.

So this article makes sense to me - while Coinbase can clearly guess what the SEC might argue, the fact is the SEC hasn’t told them yet. So there’s nothing to respond to (yet).

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

#356

Post by habitue »

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…

> In fact, the very fact that they went to the SEC to tell them what they were up to and check if it was legal is a bit of a red flag.

You might come to this conclusion if you think of laws as creating a fine boundary between legal and illegal. In crypto in particular, there are a ton of open legal questions that the SEC has not given explicit guidance about and certainly have no settled legal precedent in court.

The SEC has the ability to write you a get out of jail free card, actually. You write to them and ask them to give you a letter saying they OK'd the thing you're doing as a one-off and that they are not issuing a general rule that that kind of thing is ok (in case they change their minds later).

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

#357

Post by hef19898 »

wantsanagent wrote: post #344
rmah wrote: post #313

Earlier quoted context omitted.

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.

Wirecard Bank was up for crabs...

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

#358

Post by mandevil »

SilasX wrote: post #312
plainnoodles wrote: post #310

Earlier quoted context omitted.

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.

Fair point, but when you take a margin loan, you also don’t have to register it as a security.

But the broker-dealer who made the margin loan is extremely heavily regulated by the SEC- margin loans are some of the things that they have the longest history with!

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

#359

Post by quickthrowman »

TomSwirly wrote: post #227
rjknight wrote: post #76

Earlier quoted context omitted.

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 pe…

> 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.

LTCM?

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

#360

Post by darksaints »

dragonwriter wrote: post #323
darksaints wrote: post #303

Earlier quoted context omitted.

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…

> Coinbase's Lend program actually would be subject to other existing regulatory regimes. How? > For example, the lending of SEC-regulated securities like stocks is not regulated by the SEC, it is regulated by FINRA. Cryptocurrencies are not generally securities, though some may be. To the extent this isn’t limited to securities, it would not be regulated by FINRA. > their expectation was that the accounts would regu…

Your currency accounts at brokerages are regulated by FINRA. This includes your cash accounts at cryptocurrency brokerages and exchanges. Security lending, on both the lending of securities as well as the lending of cash for the purchase of securities, is also regulated by FINRA. This also extends to non-security financial instruments, such as forex and cryptocurrencies.

Neither the SEC nor FINRA has stated anything public about this at the moment, but I'm willing to bet FINRA will go to bat for this.

Post reply on HN