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“But the SEC let us go public” and other flawed arguments in Coinbase's defense

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Re: “But the SEC let us go public” and other flawed arguments in Coinbase's defense

#521

Post by paulddraper »

mrguyorama wrote: post #518
paulddraper wrote: post #508

Earlier quoted context omitted.

> The SEC has repeatedly and publicly stated in no uncertain terms, what the definition of a security is and also identified specific coins The head of the SEC was asked point blank multiple times if a little thing called "Etherium" was a security. He refused over and over the opportunity to be clear and certain. https://www.youtube.com/watch?v=VhA1dZXeao0

Fun story, it literally doesn't matter what Mr Gensler says or doesn't say, the related law exists on paper. Gensler doesn't make the rules. The SEC is tasked with enforcing the rules. If your company wants to know what is and isn't a security, that's up to your legal department to put together a working theory, one you think could win in court if the SEC sues you. Judges are the only people who get to clarify law wi…

> Gensler doesn't make the rules.

He literally does.

Hence the "SEC Rulemaking Process." [1]

[1] https://www.sec.gov/oig/reportspubs/aboutoigaudit347finhtm

Re: “But the SEC let us go public” and other flawed arguments in Coinbase's defense

#522

Post by semiquaver »

paulddraper wrote: post #508
semiquaver wrote: post #438

Earlier quoted context omitted.

> clear requirements in black and white terms of what is and isn’t acceptable. I’ll give you the benefit of the doubt and assume you have been misled by this frequently made claim. It’s just not true. The requirements have been clearly stated for a long time, they’re just not what people in the crypto space want to hear, so they pretend the guidance and law doesn’t exist. This document dates from 2019 and lays out in…

> The SEC has repeatedly and publicly stated in no uncertain terms, what the definition of a security is and also identified specific coins The head of the SEC was asked point blank multiple times if a little thing called "Etherium" was a security. He refused over and over the opportunity to be clear and certain. https://www.youtube.com/watch?v=VhA1dZXeao0

I couldn't tell you the reason he was evasive about Ethereum's status in that line of questioning. But highlighting edge cases where there is room for debate while ignoring blatant examples actually at issue feels like motivated reasoning. Pointing to an example where Gensler was personally unwilling to make an assessment about a fact-specific question does not invalidate the reams of guidance that _do_ exist, and the law itself. The SEC is not your lawyer, your lawyer is.

Coinbase is not being sued for being an Ethereum exchange, they're being sued for

- operating an exchange, broker, and clearing agency for specific tokens that easily fail Howey (which their internal rating framework unambiguously found to be securities)

- offering and selling their own securities via their Staking program

Re: “But the SEC let us go public” and other flawed arguments in Coinbase's defense

#523

Post by ceejayoz »

yieldcrv wrote: post #509
ceejayoz wrote: post #491

Earlier quoted context omitted.

Coinbase is a lot more accessible to the SEC than a shitcoin out of China or Bulgaria or whatnot. It's hardly an unreasonable choice, and I'm not aware of any legal theory that says the SEC can't (or even shouldn't) take that approach.

Coinbase needs far better defenses than they are using, definitely screams incompetence on their end too There are defenses to the SEC’s approach as it has nothing to do with the remoteness of some issuers, it has to do with the shaky legal ground and symbiosis that the SEC has relied upon. The SEC’s standard can be equally applied to anyone that purchased a baseball card hoping to flip it, where that unilaterally ma…

> The SEC’s standard can be equally applied to anyone that purchased a baseball card hoping to flip it, where that unilaterally makes all shops and ebay to be unregistered securities exchanges in violation of Federal Securities laws no matter what the baseball card company did to ensure otherwise.

No; the baseball card market fails various bits of the Howey test. If you sold shares in a baseball card collection, that might be a security.

https://www.sec.gov/corpfin/framework-investment-contract-an...

> When a promoter, sponsor, or other third party (or affiliated group of third parties) (each, an "Active Participant" or "AP") provides essential managerial efforts that affect the success of the enterprise, and investors reasonably expect to derive profit from those efforts, then this prong of the test is met.

In the baseball card market, the card manufacturer could cease to exist without the success of the enterprise being impacted. (This is why BTC and ETH are currently being treated by the SEC as non-securities; the original creators of both could vanish without impacting the market for the coins, which is much less true for most coins.)

Re: “But the SEC let us go public” and other flawed arguments in Coinbase's defense

#524

Post by kjs3 »

cududa wrote: post #493
kjs3 wrote: post #476

Earlier quoted context omitted.

I wish I could upvote this a couple of dozen times, because it's really the core of the issue. All this "the SEC won't give us guidance" is theater.

And the fact that it's stuck so well is what troubles me so much. The Securities Exchange Act is about a hundred years old and written in a way a laymen can understand the gist of it. It's a security. Just because you called it something else doesn't mean there aren't laws or guidance on how to register it. They just don't want to. Everyone into crypto parrots the "they won't give us guidance" line without even doing…

It's troubling, but shouldn't be surprising. It's that old "a lie told enough times..." approach to corporate governance, and it's just the latest in a long line of "if I can break the rules without serious consequence long enough, I get to win" business plan. The players repeat "is NOT" every time someone points to the very easy to find rules and says "there it is" and the and uncritical torches and pitchfork mob get spun into a frenzy about the bad old SEC.

Re: “But the SEC let us go public” and other flawed arguments in Coinbase's defense

#525

Post by kjs3 »

mrguyorama wrote: post #519
cududa wrote: post #493

Earlier quoted context omitted.

And the fact that it's stuck so well is what troubles me so much. The Securities Exchange Act is about a hundred years old and written in a way a laymen can understand the gist of it. It's a security. Just because you called it something else doesn't mean there aren't laws or guidance on how to register it. They just don't want to. Everyone into crypto parrots the "they won't give us guidance" line without even doing…

Because they don't care what the truth is, they are HEAVILY invested in crypto going up so they can cash out, and this whole "being explicitly illegal" thing is a threat to that.

Matt Levine at Bloomberg has some very entertaining coverage of the whole mess. Recommended.

Re: “But the SEC let us go public” and other flawed arguments in Coinbase's defense

#526

Post by mrguyorama »

ikiris wrote: post #118
pylua wrote: post #10

Earlier quoted context omitted.

Thanks for the insight. It does feel like the organizations ability to interpret the laws is more related to a political agency than the letter of the law. There should just be a letter of the law , analytical meaning branch of government.

This is never how the law has worked

It's so much worse than that. "Laws should be exhaustively comprehensive" is a completely unworkable system. You cannot predict every possible combination of context and law, and attempting to do so would be literal combinatorics explosion.

People who push that kind of system know this, and want the system to be hamstrung by exactly that situation. They want a system that can only outlaw their new, explicitly harmful scheme after an entire game of politics in congress, such that they could prevent something becoming law by encouraging the already bad stonewalling in congress. They want government agencies to be so bound up by poorly written law that they cannot administrate at all.

Re: “But the SEC let us go public” and other flawed arguments in Coinbase's defense

#527

Post by paulddraper »

semiquaver wrote: post #522
paulddraper wrote: post #508

Earlier quoted context omitted.

> The SEC has repeatedly and publicly stated in no uncertain terms, what the definition of a security is and also identified specific coins The head of the SEC was asked point blank multiple times if a little thing called "Etherium" was a security. He refused over and over the opportunity to be clear and certain. https://www.youtube.com/watch?v=VhA1dZXeao0

I couldn't tell you the reason he was evasive about Ethereum's status in that line of questioning. But highlighting edge cases where there is room for debate while ignoring blatant examples actually at issue feels like motivated reasoning. Pointing to an example where Gensler was personally unwilling to make an assessment about a fact-specific question does not invalidate the reams of guidance that _do_ exist, and th…

I think that both are true:

* Coinbase is deliberately doing things that are against the law.

* The SEC is being deliberately vague/unhelpful.

Re: “But the SEC let us go public” and other flawed arguments in Coinbase's defense

#528

Post by martin8412 »

CoastalCoder wrote: post #417
cr__ wrote: post #391

Earlier quoted context omitted.

If there’s no way to register, why did they proceed?

I'm not sure if this is an appropriate parallel, but it reminds me of Uber. Uber seems to be successful despite clearly (IIUC) breaking laws that regulate taxi services. If it worked for Uber, I can see why other businesses might have similar hopes.

Uber is perfectly legal here in Spain, but they're regulated as regular VTC vehicles. Uber can't arbitrarily lower the price. It has to be within some percentage of regular taxis for same level of service. Taxis have an advantage though because they have exclusive access to certain areas.

Re: “But the SEC let us go public” and other flawed arguments in Coinbase's defense

#529

Post by mrguyorama »

RestlessMind wrote: post #505
JumpCrisscross wrote: post #209

Earlier quoted context omitted.

> comparison with heroin - wtf? To extend that ridiculous analogy, it would be akin to FDA approving heroin based products (similar to how SEC approved Bitcoin ETF in 2021) and then going after heroin You’re describing regulated opiates versus street heroin. That is the point. Nobody thinks street heroin distributors can reasonably be shocked they’re breaking the law just because pharmacists distribute similar produc…

> The SEC isn’t doing anything to suggest it claims jurisdiction over Ethereum. (It’s also not at his discretion.) That's the thing - they are not clarifying whether they have jurisdiction or not. And then you have to play the guessing game, with CFTC also chiming in about their preferences.

This is the cost of operating business in a grey area. Nobody put a gun to Coinbase's head and forced them to open up shop and get stupidly rich.

If you are running a sketchy business, you better have a team of lawyers going through case law and sketching up a theory of law that is defensible in court. Instead, it looks like Coinbase disliked the answer lawyers gave them, and went for the PR strategy instead. If Coinbase honestly thought they were on the right side of the law, they wouldn't be begging the public to vote for different people.

Re: “But the SEC let us go public” and other flawed arguments in Coinbase's defense

#530

Post by martin8412 »

pjc50 wrote: post #467
jongjong wrote: post #415

Earlier quoted context omitted.

Someone once told me it costs like $60K to register a crypto as a security... A chicken and egg problem. How will you get $60K without an ITO? Yet if you have an ITO in order to raise the $60K that you need to register your ITO legally, you're already in breach. It has similar vibes as the US law which only allows accredited investors to invest in fast growing startups... 'To protect mom and pop investors' yeah right…

The basic filing fee is extremely reasonable: https://www.sec.gov/ofm/filing-fee-rate : about 0.1% of the value of the IPO. It's the legal advice and accounting specialists required to produce an adequate prospectus that's the big cost. But again: if you're raising millions, it seems not unreasonable to front some of that, even as personal debt, in order to prove "skin in the game" and that it's not a scam. EOS raise…

The issue is of course that most of the IPOs are pumps and dumps. If they register as securities, then they are liable for said scheme.
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