U.S. State Regulators Intervene in Coinbase’s Unregistered Securities Case – Coinbase’s legal battle concerning the regulatory status of cryptocurrency encountered a fresh challenge on Tuesday, as state authorities and legal experts from the United States joined forces with federal securities regulators to assert that the company had engaged in unlawful operations as an unregistered exchange.
The Securities and Exchange Commission’s actions against one of the nation’s largest cryptocurrency exchanges have significant implications for the future of the crypto industry, as critics argue that the agency is effectively regulating through enforcement in the absence of new legislation from the U.S. Congress.
Now, three new amicus briefs, which enable parties with a vested interest in the case but not directly impacted by it to support the court’s deliberations, contend that cryptocurrency is not inherently unique or exceptional, and that the SEC has the authority to regulate digital assets within the framework of existing laws.
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Coinbase’s attempt to assert that the SEC is overstepping its authority is countered by the North American Securities Administrators Association (NASAA), which contends that the regulator’s legal stance is neither groundbreaking nor exceptional.
“The SEC’s theory in this case is consistent with the agency’s longstanding public position” and “well within the bounds of established law,” said the filing by NASAA, a century-old body whose 68 members include securities regulators from all 50 U.S. states, adding that digital assets shouldn’t get special treatment.
“There is no practical economic use case identified or widely adopted for the vast majority of digital assets, other than speculation,” the filing said. “While they receive outsized attention from the media and regulators because they are aggressively marketed and fertile ground for fraud, that attention belies the very limited size and significance of this ‘industry’ in the context of the broader U.S. economy.”
Another amicus brief submitted by two academic administrative law experts argued that Coinbase was mistaken in relying on a legal doctrine that restricts government agencies from making economically impactful interventions without explicit congressional authorization.
“The major questions doctrine simply is irrelevant to this action,” because the Coinbase case concerns enforcement against a particular company rather than quasi-legislative rulemaking, said the filing by Todd Phillips of Georgia State University and Beau Baumann of Yale Law School. “Far from asserting new power to regulate the ‘national economy,’ the SEC brought a specific complaint in federal court.”
The Supreme Court recently expanded the major questions doctrine in its ruling against President Joe Biden’s decision to cancel student debt. However, using this doctrine for cryptocurrency cases would be considered “absurd” by some, as it would establish a distinct definition of securities for lawsuits brought by private individuals rather than government entities.
These government-supported legal actions were supported by the New Finance Institute, a public benefit corporation running two financial blogs. The institute contended that Congress intended investor protection measures to encompass more than just fundraising transactions.
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“The purchasing of crypto tokens should not be characterized as investments due to the lack of cash flow generation (a long-established prerequisite for any true investment),” the NFI filing said. “Such purchases are still investment contracts, however, because the buying public is denied the full and fair disclosure that they are not investing.”
Earlier this year, the SEC initiated legal actions against several cryptocurrency exchanges, including Coinbase, Binance, and Bittrex. Their argument was that the native coins associated with blockchains like Solana (SOL), Cardano (ADA), and Polygon (MATIC) bore a resemblance to traditional financial instruments.