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

#371

Post by jjulius » Wed, Sep 08, 2021, 3:42 PM UTC

yunohn wrote: post #366

seibelj wrote: post #324

Earlier quoted context omitted.

No admission of wrongdoing, all money returned to investors, and IMO we didn't do anything wrong despite the SEC's opinion. I laugh to the bank because I've been in crypto for a decade!

> No admission of wrongdoing (…) IMO we didn't do anything wrong despite the SEC's opinion No admission of wrongdoing is always a red flag, implying there was definite wrongdoing. It’s good that your opinion matters less than the SEC’s “opinion”. Atleast your investors got their money back, I guess…

Not all of them got their money back, and those that chose to keep their money with them appear to have still been screwed.

https://medium.com/@svenema/sec-powerless-against-crypto-rug...

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

#372

Post by mandevil » Wed, Sep 08, 2021, 3:42 PM UTC

darksaints wrote: post #360

dragonwriter wrote: post #323

Earlier quoted context omitted.

> 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…

You seem to be confused about the relationship between FINRA and the SEC. FINRA is not the equal of the SEC, they are subordinate. FINRA is a self-regulatating, non-governmental organization to whom the SEC delegates some regulatory enforcement authority, however the SEC is the government, and the SEC is always the (first level) of appeal if you don't like what FINRA says.

If the SEC says no, FINRA can't say yes, because (to a first approximation) that's their boss.

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

#373

Post by SilasX » Wed, Sep 08, 2021, 3:43 PM UTC

mandevil wrote: post #358

SilasX wrote: post #312

Earlier quoted context omitted.

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!

I know, just saying it's not a good example to make the point about "risk of loss implies need to register as security".

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

#374

Post by modeless » Wed, Sep 08, 2021, 3:44 PM UTC

throwaway2037 wrote: post #171

modeless wrote: post #22

Earlier quoted context omitted.

It's there for me. Copied below if people are still having trouble seeing it. The SEC has told us it wants to sue us over Lend. We don’t know why. By Paul Grewal, Chief Legal Officer Last Wednesday, after months of effort by Coinbase to engage productively, the SEC gave us what’s called a Wells notice about our planned Coinbase Lend program. A Wells notice is the official way a regulator tells a company that it inten…

Thank you to post. Real question (zero trolling): What are the rules around here (implicit or explicit) about reposting / quoting? Sometimes, I am bit nervous to repost the whole thing. I don't see it often on HN. Maybe @dang can provide some insight.

I certainly wouldn't post a news article from behind a paywall. But this is essentially a press release intended for wide distribution, and people are having trouble accessing it for technical reasons, so I see no issue reposting it as a temporary fix to the problem.

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

#375

Post by darksaints » Wed, Sep 08, 2021, 3:49 PM UTC

mandevil wrote: post #372

darksaints wrote: post #360

Earlier quoted context omitted.

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…

You seem to be confused about the relationship between FINRA and the SEC. FINRA is not the equal of the SEC, they are subordinate. FINRA is a self-regulatating, non-governmental organization to whom the SEC delegates some regulatory enforcement authority, however the SEC is the government, and the SEC is always the (first level) of appeal if you don't like what FINRA says. If the SEC says no, FINRA can't say yes, bec…

You're right that FINRA is authorized by the SEC, but that doesn't mean that regulatory powers that FINRA has been authorized to perform can be pulled back on a whim. There is a binding charter in place, and there is plenty of history of FINRA telling the SEC to fuck off when something is clearly within their wheelhouse.

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

#376

Post by darksaints » Wed, Sep 08, 2021, 3:51 PM UTC

dragonwriter wrote: post #370

darksaints wrote: post #368

Earlier quoted context omitted.

> The Howey test doesn't apply here. No, it doesn't. The Howey test applies to commercial paper, tradability is inherent. In that sense, the Howey test isn't the only test for a definition of a security...it is a test that applies to anything that is a tradable financial instrument. If the Howey test was the only test used to define a security, your bank account would be considered a security. But your bank account i…

> The Howey test applies to commercial paper, tradability is inherent. Howey itself did not concern commercial paper, so if the Howey test only applied to that, it would be nonbinding dicta .

Meant to say investment contracts.

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

#377

Post by cormacrelf » Wed, Sep 08, 2021, 3:55 PM UTC

asperous wrote: post #81

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…

From the wikipedia article it seems the Howey test is the legal test if something is a security: "an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by forma…

The funny part is that Howey was about selling parcels of orange grove land to people who would then lease (“Lend”) it back. Howey would then cultivate oranges on the whole block of land, and distribute the profits to the landowners, who would not have to lift a finger. Coinbase is not only satisfying the Howey test, it’s doing almost exactly the same thing as the OG and acting all surprised the SEC considers it a security.

This is like accidentally sealing a snail in a bottle of kombucha and making a blog post about how you don’t think it constitutes negligence because you haven’t read Donoghue v Stevenson but you heard it was actually about ginger beer.

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

#378

Post by dcolkitt » Wed, Sep 08, 2021, 3:57 PM UTC

qeternity wrote: post #320

dcolkitt wrote: post #263

Earlier quoted context omitted.

Did Uber not fundamentally change the taxi and limousine laws? Did AirBnB not fundamentally change hotel and rental law? Did file sharing not fundamentally change copyright enforcement? Did Internet pornography not fundamentally end obscenity laws? Does delta-8 not fundamentally change cannabis prohibition? The point is that technology very often can and does magically change the tenets of an activity. This is just a…

Please show me which laws Uber and Airbnb have changed. If anything, those companies have trended towards existing regs. File sharing creating an entire industry of copyright enforcement, far from whatever you’re suggesting. Internet pornography ending obscenity laws? What in the hell are you on about? Those laws changed before the Internet and not because of technology. Drug laws have changed for no reason other tha…

The price of a NYC taxi medallion fell from $1 million in 2014 to under $50,000. How else do you explain that besides the disruption caused by Uber. You might point and stammer "but, but, the rules written in the book still say the same thing!" But that's not how legal realism works.

Law is not some magical words in a special book. Law is the way that the legal system shapes human society. Would any neutral third party anywhere claim with a straight face that the New York City ride share system is not a fundamentally different regime than what it was 10 years ago?

> Internet pornography ending obscenity laws? What in the hell are you on about? Those laws changed before the Internet and not because of technology

As an aside, this is straight up factually wrong. The Ashcroft DOJ tried to actively bring obscenity charges against Internet pornographers:

https://www.wired.com/2001/06/ashcrofts-hard-line-on-hardcor...

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

#379

Post by throwaway98797 » Wed, Sep 08, 2021, 3:58 PM UTC

Wowfunhappy wrote: post #255

ckdarby wrote: post #248

Earlier quoted context omitted.

And it worked! Reading this and reading HN comments I realize I don't want the SEC involved in this. Crypto is more & more bringing to the front of the conversation about how protection should be the default but having the ability to opt out is the choice individuals should have. FDIC is a perfect example! There are accounts I know and would expect that but there are times I'm willing to waive that for compensation.…

FDIC was put in place after The Great Depression, in order to prevent another Great Depression. There is no opt out because when large numbers of people make risky investments without planning for the consequences, it affects the entire economy.

Individual freedom vs. community safety.

Where to draw the line?

Who should draw it and by what mechanism?

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

#380

Post by jimkleiber » Wed, Sep 08, 2021, 3:59 PM UTC

This article seems to play into a trend I think I'm seeing more and more: caring more about the court of public opinion than the court of law.

At least that's the impression I got from phrases such as "engage productively", "proactively engaging", "eager to hear", and others that seem to say that Coinbase has good intentions and is trying their best, while at the same time seeming to portray the SEC as uncooperative and antagonistic, through phrases such as "SEC still won’t explain", "wouldn’t say why or how they’d reached that conclusion", and others.

The one that hits me the most and makes me think this is more about trying to align with the public will and not the current law is the following: "They have only told us that they are assessing our Lend product through the prism of decades-old Supreme Court cases called Howey and Reves."

AFAIK, a decades-old Supreme Court case is still considered valid law, and such an appeal I would imagine would fall pretty flat in a court of law, but seems to work well in a public sphere.

I'm open to being off on this, I guess I just feel a bit unsure how to proceed in this internet age, when I get the impression that people are skirting the courts of law more and more.