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

#411

Post by olalonde » Wed, Sep 08, 2021, 6:57 PM UTC

elliekelly wrote: post #354

olalonde wrote: post #132

Earlier quoted context omitted.

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.

But can they fight the decision in court before breaking it and risking fines/jail time?

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

#412

Post by SilasX » Wed, Sep 08, 2021, 7:09 PM UTC

arcticbull wrote: post #405

SilasX wrote: post #394

Earlier quoted context omitted.

You really don't see anything wrong with, "It's illegal for you to do this but not your identical competitors with an identical product"?

The SEC didn't say that everyone else could do it. They said the action itself is illegal and they're beginning their enforcement actions at Coinbase. Nobody is allowed to do it, and a judgement in their favor here will allow them to expeditiously stop everyone else with the explicit precedent they form. That's almost certainly why they're pushing ahead. It feels like your reaction is akin to a group of 5 cars speedi…

No, it feels like my reaction is akin to basic government accountability and asking why enforcement is so inconsistent. Coinbase isn't complaining that the law exists -- as in the Twitter thread, they're happy to comply with the law, so long as they know what it is!

Your analogy isn't very good. Offering a long-term financial product isn't like a one-off instance of speeding where it only last a few minutes. It's more like group A getting ticketed every day for speeding while going with the flow of traffic, and group B never gets ticketed for doing the exact same thing, and, oh, group B makes more donations to the police.

Your reaction is akin to someone who sees that going on, and says it's okay because police don't catch every speeder. "As long there aren't accidents: mission accomplished."

Believe me, I get the concept of not catching everyone. Letting a financial product persist for one company but not another isn't that!

And:

>The SEC didn't say that everyone else could do it.

Yeah ... they did. By not prosecuting the others who have already started doing it, and been doing longer, or clarifying what's different, or at least saying "oh don't worry, they're going down too".

If I'm wrong here, it's for reasons other than not understanding the concept of not catching every violation.

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

#413

Post by arcticbull » Wed, Sep 08, 2021, 7:16 PM UTC

SilasX wrote: post #412

arcticbull wrote: post #405

Earlier quoted context omitted.

The SEC didn't say that everyone else could do it. They said the action itself is illegal and they're beginning their enforcement actions at Coinbase. Nobody is allowed to do it, and a judgement in their favor here will allow them to expeditiously stop everyone else with the explicit precedent they form. That's almost certainly why they're pushing ahead. It feels like your reaction is akin to a group of 5 cars speedi…

No, it feels like my reaction is akin to basic government accountability and asking why enforcement is so inconsistent. Coinbase isn't complaining that the law exists -- as in the Twitter thread, they're happy to comply with the law, so long as they know what it is! Your analogy isn't very good. Offering a long-term financial product isn't like a one-off instance of speeding where it only last a few minutes. It's mor…

> No, it feels like my reaction is akin to basic government accountability and asking why enforcement is so inconsistent. Coinbase isn't complaining that the law exists -- as in the Twitter thread, they're happy to comply with the law, so long as they know what it is!

I'm sorry - they know what it is. Any lawyer will tell you exactly what it is. It's the Howey test, it's been the law of the land for 70 years and the SEC issued guidance on how it applies to digital assets. [1] Literally the first page of the Securities Act of 1933 explains that lending products are securities.

Brian is feigning ignorance on twitter while acting indignant that someone told him no. His lawyers told him no. The SEC told him no. He said I'm gonna do it anyways. They said see you in court. He follows up with a late-night twitter rant, roughly "how could the SEC do this? how could a lending product possibly be a security?!"

[edit] The man literally owns an SEC registered broker-dealer lol.

[edit] Even Preston Byrne from Anderson Kill tweeted today that it was obviously a security. That's the most libertarian cypto-sympathizer attorney on the face of the earth.

> Your reaction is akin to someone who sees that going on, and says it's okay because police don't catch every speeder. "As long there aren't accidents: mission accomplished."

Regulators don't act day 1, legal proceedings take time. You're saying "because they took the usual amount of time everyone should be allowed to do whatever they want - or they should sue them all, all at the same time." Nope. That's not how this game works.

They can't stop everyone at the same time, and they can't jump them on day 1. They're not omnipotent, and they certainly don't have unlimited resources.

What Brian wants isn't to work with regulators, its for regulators to let him do whatever he wants on his terms and on his schedule. That's not the same thing.

[1] https://www.sec.gov/files/dlt-framework.pdf

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

#414

Post by danaris » Wed, Sep 08, 2021, 7:18 PM UTC

GHK1422 wrote: post #398

danaris wrote: post #276

Earlier quoted context omitted.

Because there is a power and information asymmetry at work, and humans are not perfect rational actors. The institutions that would want to operate these have the power to run massive advertising campaigns promoting them as the best place to earn money (with a bunch of quick disclaimers just like the various medical ads that people have gotten so used to now). The people who would be preyed upon by this are not those…

But you see how locking people out of risk locks them out of reward right? The interface to regulate should be on the educational front, not on the access front. Instead the regulatory framework we have leads to the accredited class being protected from competition and is a direct antecedent to the neo gilded age landscape we are in now. IMO the want for regulation that "protects" investors on the margin while hurtin…

In theory, it locks people out of reward.

In practice, it locks them out of scams.

It is horrendously irresponsible to enable practices that we can predict will, with very high probability, result in significantly greater ability for predatory and unscrupulous actors to take advantage of the public, especially if the purpose is merely to allow the wealthy—and it is only the wealthy who can genuinely take advantage of such things; the rest of us simply can't afford to take those risks—to try their hand at high-stakes gambling.

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

#415

Post by arcticbull » Wed, Sep 08, 2021, 7:44 PM UTC

madamelic wrote: post #234

arcticbull wrote: post #44

Earlier quoted context omitted.

"But mom everyone else is doing crime, why cant I do crime? Not doing crime puts me at a major disadvantage with respect to my criminal peers." - Brian Armstrong, TLDR

I don't think the argument is that. It's that Coinbase asked if they could, SEC said "no, I'll sue you" and Coinbase is like "WTF dude, all these other platforms aren't being sued for doing exactly this." Coinbase may not have known the SEC's opinion on this before they started talking to the SEC since it seemed like the SEC was ok with it happening elsewhere.

It's their attorney's job to find out. This is why the have general counsel.

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

#416

Post by bastawhiz » Wed, Sep 08, 2021, 7:54 PM UTC

nostrademons wrote: post #395

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.

Those risks apply to the traditional banking system as well. Someone could phish your login and password. Someone could steal your checks. Someone could open a policy with Progressive Insurance, provide a stolen account number, and pay their premiums out of your bank account while conducting progressively larger insurance fraud. Your bank could get hacked. Your bank could go bankrupt. We dealt with an identity theft…

Account security best practices are orthogonal to how your assets are handled behind the scenes. The SEC isn't regulating securities because someone might log into your account, they regulate them because someone at Coinbase could be deceiving investors or hiding risk.

Money doesn't appear magically from nowhere. If someone is offering you return for holding your cash, it's not just sitting there. The risk is implicit in whatever they're doing to turn your N money into NM money: there is no way to absolutely guarantee that M is >0.

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

#417

Post by rspeele » Wed, Sep 08, 2021, 8:00 PM UTC

hajile wrote: post #397

phkahler wrote: post #367

Earlier quoted context omitted.

>> The real answer is to do away with the fractional reserve lending where a bank gets $100 and then proceeds to loan out $900. That is simply not true. It's a fiction (of sorts) told by people who feel fucked by the financial system.

It is basically true. I work hard and get paid $100 for what I did. I then deposit $100. The bank loans $90 to person X. Person X gives the money to person Y for some good or service. Person Y deposits $90 and now there is $190 in the bank. The bank loans $81 to person X+1. Person X+1 gives the money to person Y+1 for some good or service. Person Y+1 deposits $81 and now there is $271 in the bank. The bank loans $72.…

You claim the original $100 has been devalued. But has it? Person X, person X+1, etc. all owe money to the bank to pay back their loan. So it's not like we're all suddenly swimming in cash in this new $1000 economy and nobody cares about your little $100 anymore. When you sum the value in everybody's account, including debts, you still get $100 total. And cash looks pretty desirable to all those debtors.

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

#418

Post by vmception » Wed, Sep 08, 2021, 8:00 PM UTC

danaris wrote: post #414

GHK1422 wrote: post #398

Earlier quoted context omitted.

But you see how locking people out of risk locks them out of reward right? The interface to regulate should be on the educational front, not on the access front. Instead the regulatory framework we have leads to the accredited class being protected from competition and is a direct antecedent to the neo gilded age landscape we are in now. IMO the want for regulation that "protects" investors on the margin while hurtin…

In theory, it locks people out of reward. In practice, it locks them out of scams. It is horrendously irresponsible to enable practices that we can predict will, with very high probability, result in significantly greater ability for predatory and unscrupulous actors to take advantage of the public, especially if the purpose is merely to allow the wealthy—and it is only the wealthy who can genuinely take advantage of…

The current outcome is a mistake, no one specific law, but perpetuated by fear that paycheck to paycheck people will get scammed

It is an overfitted system that has created more and more compliance in response to rare scams that occurred within the rules of their system anyway! If companies didnt find it too expensive to go public earlier nobody would be trying to have this conversation. People wouldnt be getting ripped off in massive SPAC deals because the target companies would be public already.

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

#419

Post by SilasX » Wed, Sep 08, 2021, 8:06 PM UTC

arcticbull wrote: post #413

SilasX wrote: post #412

Earlier quoted context omitted.

No, it feels like my reaction is akin to basic government accountability and asking why enforcement is so inconsistent. Coinbase isn't complaining that the law exists -- as in the Twitter thread, they're happy to comply with the law, so long as they know what it is! Your analogy isn't very good. Offering a long-term financial product isn't like a one-off instance of speeding where it only last a few minutes. It's mor…

> No, it feels like my reaction is akin to basic government accountability and asking why enforcement is so inconsistent. Coinbase isn't complaining that the law exists -- as in the Twitter thread, they're happy to comply with the law, so long as they know what it is! I'm sorry - they know what it is. Any lawyer will tell you exactly what it is. It's the Howey test, it's been the law of the land for 70 years and the…

>It's the Howey test, it's been the law of the land for 70 years and the SEC issued guidance on how it applies to digital assets.

Did you miss where I said the issue is that they're being treated differently? I spent at least two paragraphs on the concept. Even if it's "obviously" a security by the Howey test, that doesn't explain why others get a free pass, or why they can't confirm that's their reasoning, or why others aren't being treated the same, or a why they can't confirm they intend to treat others the same.

Repeating the same argument doesn't advance the conversation!

See also this comment: https://news.ycombinator.com/item?id=28459949

>Regulators don't act day 1, legal proceedings take time.

Again, I understand this concept, it's just a red herring. they're on day 180 with Gemini and day -30 with Coinbase. Saying it takes time is just an easy soundbite for you to parrot, not an actual explanation for the discrepancy, just like "we can't catch all speeders" isn't an explanation for the patterns in which you let speeders go.

>[edit] Even Preston Byrne from Anderson Kill tweeted today that it was obviously a security lol. That's the most libertarian cypto-sympathizer attorney on the face of the earth.

Which of my arguments is that relevant to?

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

#420

Post by elliekelly » Wed, Sep 08, 2021, 8:10 PM UTC

olalonde wrote: post #411

elliekelly wrote: post #354

Earlier quoted context omitted.

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.

But can they fight the decision in court before breaking it and risking fines/jail time?

You’re never risking jail time with the SEC. They’re civil enforcement so they can only pursue fines and injunctions.

Like all civil matters, a person can negotiate with the (allegedly) aggrieved party, in this case the SEC, and settle the matter with them before a suit is filed.