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Some here have said it’s the SEC who should have a more collaborative spirit. But all of their incentives, job descriptions, and reason to exist are to _enforce

Some here have said it’s the SEC who should have a more collaborative spirit. But all of their incentives, job descriptions, and reason to exist are to _enforce laws_ not be chummy with startup executives. The “mean” approach to securities enforcement is what we as a society need…there are far too many scams and people who run them, and those scams seem especially concentrated within the crypto world. After the blitz of NFT’s last year, I hope the SEC is grumpy as hell. It’s not that crypto doesn’t fit within an established legal framework…it _does_. People have been trying to find their way around securities laws forever, but most of those laws because someone got ripped off.

1vuio0pswjnm7 4y ago
In the blog past Coinbase General Counsel asks for "guidance". The guidance for future "crypto entrepreneurs" is going to come from the outcomes of these enforcement actions. CryptoExpert: "We want guidance. We want regulation." SEC: "Your product/service is a security." CryptoExpert: "No it's not!" Damodoran called cryptocurrency "currency made by the paranoid for the paranoid." [paraphrase] Let's be honest, cooperating with the government is not high on the crypto nerd's list of priorities. The "cryptocurrency" concept seems to be based on a mistrust of government-issued currency and a mistrust of government more generally.
- joefigura 4y ago
  It doesn't seem like the SEC has actually said what Coinbase is doing that is a security, or published regulations on how to determine which digital assets are securities and which are not "The SEC staff told us they have identified potential violations of securities law, but little more. We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so" - https://www.coinbase.com/blog/we-asked-the-sec-for-reasonable-crypto-rules-for-americans-we-got-legal https://www.coinbase.com/blog/we-asked-the-sec-for-reasonabl... Coinbase seems to be trying their best to comply with regulation, but getting nowhere
  - beaned 4y ago
    How can you possibly be a fair "enforcer" of a law that you refuse to specify?
    - Kye 4y ago
      Law in the US is made by Congress. Federal agencies are given a fair amount of latitude in executing that law, but they're still bound by it. They can offer guidance as best as they can when Congress is slow to act, but that's about it. At the end of the day, they still have to convince a prosecutor if they want to make a federal case out of it.
  - pavlov 4y ago
    Regulations and court precedents about what’s a security have been published since the 1930s. Lots of people have tried to work around it. Crypto isn’t the first attempt to create pseudo-securities where the layers of ownership and control are obfuscated. The rules aren’t really that complicated — it’s just that crypto people have a hard time facing the fact that practically everything in crypto meets the definition of a security. Coinbase’s lawyers are paid to come up with a paradigm where the tokens on their platform can continue to be sold to retail with the implied benefits of a security (“buy token X and the awesome work of our team will make you money!”) while hopefully skirting the regulations. The SEC’s lawyers’ job is not to help them craft that. It’s not like you can go to the police to repeatedly ask if your scheme to avoid the law is going to work this time. The IRS doesn’t offer that kind of tax avoidance planning feedback service either. If that’s what your business needs to operate, you’ll just have to trust your own lawyer about their interpretation of the law and why it doesn’t apply to you.
    - jefftk 4y ago
      The IRS gives lots of detailed guidance [1] on how to file your taxes, including specifically for cryptocurrency [2]. The SEC has given very little guidance here, mostly just repeating their normal non-cryptocurrency guidance in a way that wouldn't be informative to a securities lawyer [3], and especially hasn't addressed the way their current rules are incompatible with crypto. That Etherium, for example, has existed for a decade and become as big as it is without the SEC deciding whether it's a security makes it very hard for anyone to plan. (I don't own any crypto and haven't ever; generally anti-crypto.) [1] https://www.irs.gov/publications https://www.irs.gov/publications [2] https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets https://www.irs.gov/businesses/small-businesses-self-employe... [3] https://www.sec.gov/files/dlt-framework.pdf https://www.sec.gov/files/dlt-framework.pdf
- trompetenaccoun 4y ago
  Other parts of the government do not agree with that take: https://fortune.com/crypto/2023/03/08/stablecoins-ether-commodities-cftc-rostin-behnam-sec-gary-gensler/ https://fortune.com/crypto/2023/03/08/stablecoins-ether-comm... The CFTC has been regulating cryptocurrencies just like the SEC. Which part of the government has been breaking the law? HN legal experts will figure it out with snark.
  - JohnFen 4y ago
    In this sort of situation, it's usually the courts that make the ruling. In order for that to happen, someone has to get sued. It appears that's where this is headed. Clarity is coming.
- matheusmoreira 4y ago
  > The "cryptocurrency" concept seems to be based on a mistrust of government-issued currency and a mistrust of government more generally. It certainly was. Some coins like monero still are all about that. Most of the cryptocurrency space turned into stocks though. They even reinvented banks.
  - ignoramous 4y ago
    tbf, recreating banks but without regulation is one way to go about orchestrating once-in-a-generation wealth transfer from... one LP to another.
    - hungryforcodes 4y ago
      What does that even mean?
      - jcpham2 4y ago
        It means reinventing the wheel is going to yield a square. But not just a square but a new and exciting square where many people who once had money no longer have money because it was transferred to another pool of liquidity and those poor souls still left outside in the cold will not be made whole.
        hungryforcodes 4y ago
        OK. Clear as mud :)
- 1vuio0pswjnm7 4y ago
  https://finance.yahoo.com/news/coinbase-says-just-no-way-to-register-with-sec-amid-calls-for-compliance-161129587.html https://finance.yahoo.com/news/coinbase-says-just-no-way-to-... Coinbase claims there is "no path to registration". But that is not the SEC's problem. If Coinbase runs its operation in a way that precludes it from being able to comply with securities laws, then that is a problem with Coinbase's operation, not the SEC. Ultimately whether or not something is a security is determined by the courts, not the SEC. The statute states that a security can be an investment contract. However "investment contract" is not defined. The definition is left to the courts. That's why the test for a security is based on a definition used in a 1946 decision, SEC v W.J. Howey. The SEC can state they believe crypto is a security. "Crypto experts" can state they believe crypto is not a security. But only a court can decide what actually is a security. The SEC cannot tell Coinbase if their products are securities, only a court can do that. The SEC can tell Coinbase that it thinks their products are securities. The SEC can decide to enforce the securities laws at its own discretion.^1 With the Wells notice Coinbase knows unequivocally that the SEC thinks its products could be securities. The ball is in Coinbase's court. The question is, then, if the SEC suggests that crypto is a security, or even that it ever might be one, what is the best course of action for a "crypto entrepreneur". (a) stop (b) continue (c) comply Coinbase and others are choosing (b). That is their decision to make. Maybe they think they can win against the SEC in court. One of the most well-known treatise authors on the subject of securities regulation, along with Louis Loss and Joel Seligman, is Thomas Lee Hazen at UNC Chapel Hill. He has weighed in on crypto. For example, see Hazen, T. L. (2018). Virtual or Crypto Currencies and the Securities Laws. SSRN Electronic Journal. doi:10.2139/ssrn.3257449 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3257449 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3257449 "Although some have argued that virtual or crypto currencies are not securities,36 The better view is that virtual or crypto currency transactions often, if not always, are subject to the securities laws.37" Personally I cannot read Hazen's article and conclude that it's prudent to assume crypto is not subject to securities laws. But then I am not being paid to argue in crypto's favour. IMO, much if not all of what we read in defense of crypto is written by folks who stand to gain from its popularity. That is not just limited to people who have spent money on it. 1. It does not need the CFTC's permission. For example, it served Paxos Trust with a Wells notice and Paxos stopped minting BUSD. CFTC might think BUSD is a commodity but that did not stop the SEC from acting to protect the public.
- haakon 4y ago
  > The "cryptocurrency" concept seems to be based on a mistrust of government-issued currency and a mistrust of government more generally. This is the classic notion of cryptocurrency, but the field has grown and changed a lot. People don't mint NFT collections and dabble in metaverse tokens as a middle-finger to the state. The VC-funded cryptocurrencies of the last cycle are obviously centralized and are far removed from any cypherpunk notion.
  - 1vuio0pswjnm7 4y ago
    Are you telling me Lindsay Lohan is not a cypherpunk.
  - TheOtherHobbes 4y ago
    They do it to make money without having to pay tax. Which is not quite a middle finger to the state, but it's certainly middle-finger-to-the-state adjacent.
  - JohnFen 4y ago
    > This is the classic notion of cryptocurrency, but the field has grown and changed a lot Maybe? It's pretty hard to tell, though, because 90% of the cryptocurrency advocates I hear are from the "government is evil" crowd.
- mschuster91 4y ago
  > Damodoran called cryptocurrency "currency made by the paranoid for the paranoid." [paraphrase] Let's be honest, cooperating with the government is not high on the crypto nerd's list of priorities. The "cryptocurrency" concept seems to be based on a mistrust of government-issued currency and a mistrust of government more generally. Given the history of cryptocurrencies, that was indeed the base - Bitcoin really took off once Silk Road crossed the threshold from "only drug nerds know about this" to "everyone and their dog buys research chemicals on SR". Unfortunately, the best days of Silk Road were something like an Eternal September event, as people then discovered that Bitcoin might also be used for speculation...
- hackernewds 4y ago
  It is a marketing tactic now that highly centralized capitalist companies pretend to be socialist decentralized warriors for the common people. https://twitter.com/brian_armstrong/status/1638674083817885697?s=20 https://twitter.com/brian_armstrong/status/16386740838178856... BA appears to be taking this head-on to go on the offensive.
deleted 4y ago
[deleted]
botanical 4y ago
And a company can settle criminal and civil charges by paying a fine to the SEC. That's as chummy as they get. ASEA Brown Boveri ABB Settles SEC Charges That It Engaged in Bribery Scheme in South Africa https://www.sec.gov/news/press-release/2022-214 https://www.sec.gov/news/press-release/2022-214
ALittleLight 4y ago
We as a society need laws and regulations that can't be clearly articulated or explained by the agencies explicitly tasked with doing that?
- soco 4y ago
  SEC (or other agencies) are definitely not tasked to explain the laws and regulations, they're not offering consulting services either. Coinbase can pay lawyers to explain the laws to them, or get in court (which they will, eventually) to get a judge explain it for good.
  - hef19898 4y ago
    The last sentence sounds worse than it is. Because for questions like these, the courts are the ultimate grounds where different interpretations of the law get settled. Of course, this different interpretation if the law can mean that one side is ik clear violation of existing, and well understood, laws and regulations.
matthewdgreen 4y ago
I think NFTs are foul. But are you implying that awful collector’s items (no matter how speculative and distasteful) should be regulated as securities? What is the principle there that separates them from physical artworks?
- TheOtherHobbes 4y ago
  Physical artworks have cultural as well as financial value, as well as intrinsic rarity. There's a unique physical object. At the high end it's likely to be famous and instantly recognisable. If you buy it you get full property rights. You can hide it, show it, sell images of it, or burn it. It's yours in an absolute sense, and you can do whatever you like with it. NFTs sell the right to speculate. The works themselves are not rare or unusual, and NFT owners don't own the work itself. They can't sell copy/use rights in the way a stock photo or clipart library does. All they have is a bet their NFT can be sold to someone else at a profit. So while real art is often used for tax dodges, money laundering, and speculation, the artworks are not usually created for those ends. Nor are other collectibles. NFTs are created solely for speculation. They have no other purpose. The art itself is a thin and not very convincing cover story.
  - flappyeagle 4y ago
    These days most fine art is purchased, if not created solely for speculation. Most art by artists famous and obscure sits in dedicated climate controlled warehouses never to be seen by human eyes. It's traded and re-traded without physically moving. They could have been set on fire and no one would know the difference. NFTs are one of the actual reasonable uses of crytpo because it maps so closely to how the art market actually works.
  - syntheweave 4y ago
    This critique falls on the line of scapegoating NFTs because there are many examples of physical goods that have varied use, valuation and trade properties. To name two, I can't make derivatives of a Funko Pop collection, and I can buy counterfeit watches. On the end of the artist, real art and NFT art are sold for the same reason: someone wants to buy an idea. The tangibility of the art isn't a clear point for utility, because valuable art comes with complex considerations for its preservation and delivery, and in some cases stays vaulted and traded with certificates, which provides a definite negative utility - nobody sees it, yet you have a whole institution around trading it. Arguments against NFT trade ultimately come from positioning the trade network beneath the state and its regulated mechanisms for speculation, when its existence clearly expresses the opposite: the state exists at the network's convenience. Every prison economy knows this dynamic - horses are traded, abuses are not total.
hoseja 4y ago
They are chummy with all the others is the thing though.

1vuio0pswjnm7 4y ago

In the blog past Coinbase General Counsel asks for "guidance". The guidance for future "crypto entrepreneurs" is going to come from the outcomes of these enforcement actions. CryptoExpert: "We want guidance. We want regulation." SEC: "Your product/service is a security." CryptoExpert: "No it's not!" Damodoran called cryptocurrency "currency made by the paranoid for the paranoid." [paraphrase] Let's be honest, cooperating with the government is not high on the crypto nerd's list of priorities. The "cryptocurrency" concept seems to be based on a mistrust of government-issued currency and a mistrust of government more generally.

joefigura 4y ago
It doesn't seem like the SEC has actually said what Coinbase is doing that is a security, or published regulations on how to determine which digital assets are securities and which are not "The SEC staff told us they have identified potential violations of securities law, but little more. We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so" - https://www.coinbase.com/blog/we-asked-the-sec-for-reasonable-crypto-rules-for-americans-we-got-legal https://www.coinbase.com/blog/we-asked-the-sec-for-reasonabl... Coinbase seems to be trying their best to comply with regulation, but getting nowhere
- beaned 4y ago
  How can you possibly be a fair "enforcer" of a law that you refuse to specify?
  - Kye 4y ago
    Law in the US is made by Congress. Federal agencies are given a fair amount of latitude in executing that law, but they're still bound by it. They can offer guidance as best as they can when Congress is slow to act, but that's about it. At the end of the day, they still have to convince a prosecutor if they want to make a federal case out of it.
- pavlov 4y ago
  Regulations and court precedents about what’s a security have been published since the 1930s. Lots of people have tried to work around it. Crypto isn’t the first attempt to create pseudo-securities where the layers of ownership and control are obfuscated. The rules aren’t really that complicated — it’s just that crypto people have a hard time facing the fact that practically everything in crypto meets the definition of a security. Coinbase’s lawyers are paid to come up with a paradigm where the tokens on their platform can continue to be sold to retail with the implied benefits of a security (“buy token X and the awesome work of our team will make you money!”) while hopefully skirting the regulations. The SEC’s lawyers’ job is not to help them craft that. It’s not like you can go to the police to repeatedly ask if your scheme to avoid the law is going to work this time. The IRS doesn’t offer that kind of tax avoidance planning feedback service either. If that’s what your business needs to operate, you’ll just have to trust your own lawyer about their interpretation of the law and why it doesn’t apply to you.
  - jefftk 4y ago
    The IRS gives lots of detailed guidance [1] on how to file your taxes, including specifically for cryptocurrency [2]. The SEC has given very little guidance here, mostly just repeating their normal non-cryptocurrency guidance in a way that wouldn't be informative to a securities lawyer [3], and especially hasn't addressed the way their current rules are incompatible with crypto. That Etherium, for example, has existed for a decade and become as big as it is without the SEC deciding whether it's a security makes it very hard for anyone to plan. (I don't own any crypto and haven't ever; generally anti-crypto.) [1] https://www.irs.gov/publications https://www.irs.gov/publications [2] https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets https://www.irs.gov/businesses/small-businesses-self-employe... [3] https://www.sec.gov/files/dlt-framework.pdf https://www.sec.gov/files/dlt-framework.pdf
trompetenaccoun 4y ago
Other parts of the government do not agree with that take: https://fortune.com/crypto/2023/03/08/stablecoins-ether-commodities-cftc-rostin-behnam-sec-gary-gensler/ https://fortune.com/crypto/2023/03/08/stablecoins-ether-comm... The CFTC has been regulating cryptocurrencies just like the SEC. Which part of the government has been breaking the law? HN legal experts will figure it out with snark.
- JohnFen 4y ago
  In this sort of situation, it's usually the courts that make the ruling. In order for that to happen, someone has to get sued. It appears that's where this is headed. Clarity is coming.
matheusmoreira 4y ago
> The "cryptocurrency" concept seems to be based on a mistrust of government-issued currency and a mistrust of government more generally. It certainly was. Some coins like monero still are all about that. Most of the cryptocurrency space turned into stocks though. They even reinvented banks.
- ignoramous 4y ago
  tbf, recreating banks but without regulation is one way to go about orchestrating once-in-a-generation wealth transfer from... one LP to another.
  - hungryforcodes 4y ago
    What does that even mean?
    - jcpham2 4y ago
      It means reinventing the wheel is going to yield a square. But not just a square but a new and exciting square where many people who once had money no longer have money because it was transferred to another pool of liquidity and those poor souls still left outside in the cold will not be made whole.
      - hungryforcodes 4y ago
        OK. Clear as mud :)
1vuio0pswjnm7 4y ago
https://finance.yahoo.com/news/coinbase-says-just-no-way-to-register-with-sec-amid-calls-for-compliance-161129587.html https://finance.yahoo.com/news/coinbase-says-just-no-way-to-... Coinbase claims there is "no path to registration". But that is not the SEC's problem. If Coinbase runs its operation in a way that precludes it from being able to comply with securities laws, then that is a problem with Coinbase's operation, not the SEC. Ultimately whether or not something is a security is determined by the courts, not the SEC. The statute states that a security can be an investment contract. However "investment contract" is not defined. The definition is left to the courts. That's why the test for a security is based on a definition used in a 1946 decision, SEC v W.J. Howey. The SEC can state they believe crypto is a security. "Crypto experts" can state they believe crypto is not a security. But only a court can decide what actually is a security. The SEC cannot tell Coinbase if their products are securities, only a court can do that. The SEC can tell Coinbase that it thinks their products are securities. The SEC can decide to enforce the securities laws at its own discretion.^1 With the Wells notice Coinbase knows unequivocally that the SEC thinks its products could be securities. The ball is in Coinbase's court. The question is, then, if the SEC suggests that crypto is a security, or even that it ever might be one, what is the best course of action for a "crypto entrepreneur". (a) stop (b) continue (c) comply Coinbase and others are choosing (b). That is their decision to make. Maybe they think they can win against the SEC in court. One of the most well-known treatise authors on the subject of securities regulation, along with Louis Loss and Joel Seligman, is Thomas Lee Hazen at UNC Chapel Hill. He has weighed in on crypto. For example, see Hazen, T. L. (2018). Virtual or Crypto Currencies and the Securities Laws. SSRN Electronic Journal. doi:10.2139/ssrn.3257449 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3257449 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3257449 "Although some have argued that virtual or crypto currencies are not securities,36 The better view is that virtual or crypto currency transactions often, if not always, are subject to the securities laws.37" Personally I cannot read Hazen's article and conclude that it's prudent to assume crypto is not subject to securities laws. But then I am not being paid to argue in crypto's favour. IMO, much if not all of what we read in defense of crypto is written by folks who stand to gain from its popularity. That is not just limited to people who have spent money on it. 1. It does not need the CFTC's permission. For example, it served Paxos Trust with a Wells notice and Paxos stopped minting BUSD. CFTC might think BUSD is a commodity but that did not stop the SEC from acting to protect the public.
haakon 4y ago
> The "cryptocurrency" concept seems to be based on a mistrust of government-issued currency and a mistrust of government more generally. This is the classic notion of cryptocurrency, but the field has grown and changed a lot. People don't mint NFT collections and dabble in metaverse tokens as a middle-finger to the state. The VC-funded cryptocurrencies of the last cycle are obviously centralized and are far removed from any cypherpunk notion.
- 1vuio0pswjnm7 4y ago
  Are you telling me Lindsay Lohan is not a cypherpunk.
- TheOtherHobbes 4y ago
  They do it to make money without having to pay tax. Which is not quite a middle finger to the state, but it's certainly middle-finger-to-the-state adjacent.
- JohnFen 4y ago
  > This is the classic notion of cryptocurrency, but the field has grown and changed a lot Maybe? It's pretty hard to tell, though, because 90% of the cryptocurrency advocates I hear are from the "government is evil" crowd.
mschuster91 4y ago
> Damodoran called cryptocurrency "currency made by the paranoid for the paranoid." [paraphrase] Let's be honest, cooperating with the government is not high on the crypto nerd's list of priorities. The "cryptocurrency" concept seems to be based on a mistrust of government-issued currency and a mistrust of government more generally. Given the history of cryptocurrencies, that was indeed the base - Bitcoin really took off once Silk Road crossed the threshold from "only drug nerds know about this" to "everyone and their dog buys research chemicals on SR". Unfortunately, the best days of Silk Road were something like an Eternal September event, as people then discovered that Bitcoin might also be used for speculation...
hackernewds 4y ago
It is a marketing tactic now that highly centralized capitalist companies pretend to be socialist decentralized warriors for the common people. https://twitter.com/brian_armstrong/status/1638674083817885697?s=20 https://twitter.com/brian_armstrong/status/16386740838178856... BA appears to be taking this head-on to go on the offensive.

deleted 4y ago

[deleted]

botanical 4y ago

And a company can settle criminal and civil charges by paying a fine to the SEC. That's as chummy as they get. ASEA Brown Boveri ABB Settles SEC Charges That It Engaged in Bribery Scheme in South Africa https://www.sec.gov/news/press-release/2022-214 https://www.sec.gov/news/press-release/2022-214

ALittleLight 4y ago

We as a society need laws and regulations that can't be clearly articulated or explained by the agencies explicitly tasked with doing that?

soco 4y ago
SEC (or other agencies) are definitely not tasked to explain the laws and regulations, they're not offering consulting services either. Coinbase can pay lawyers to explain the laws to them, or get in court (which they will, eventually) to get a judge explain it for good.
- hef19898 4y ago
  The last sentence sounds worse than it is. Because for questions like these, the courts are the ultimate grounds where different interpretations of the law get settled. Of course, this different interpretation if the law can mean that one side is ik clear violation of existing, and well understood, laws and regulations.

matthewdgreen 4y ago

I think NFTs are foul. But are you implying that awful collector’s items (no matter how speculative and distasteful) should be regulated as securities? What is the principle there that separates them from physical artworks?

TheOtherHobbes 4y ago
Physical artworks have cultural as well as financial value, as well as intrinsic rarity. There's a unique physical object. At the high end it's likely to be famous and instantly recognisable. If you buy it you get full property rights. You can hide it, show it, sell images of it, or burn it. It's yours in an absolute sense, and you can do whatever you like with it. NFTs sell the right to speculate. The works themselves are not rare or unusual, and NFT owners don't own the work itself. They can't sell copy/use rights in the way a stock photo or clipart library does. All they have is a bet their NFT can be sold to someone else at a profit. So while real art is often used for tax dodges, money laundering, and speculation, the artworks are not usually created for those ends. Nor are other collectibles. NFTs are created solely for speculation. They have no other purpose. The art itself is a thin and not very convincing cover story.
- flappyeagle 4y ago
  These days most fine art is purchased, if not created solely for speculation. Most art by artists famous and obscure sits in dedicated climate controlled warehouses never to be seen by human eyes. It's traded and re-traded without physically moving. They could have been set on fire and no one would know the difference. NFTs are one of the actual reasonable uses of crytpo because it maps so closely to how the art market actually works.
- syntheweave 4y ago
  This critique falls on the line of scapegoating NFTs because there are many examples of physical goods that have varied use, valuation and trade properties. To name two, I can't make derivatives of a Funko Pop collection, and I can buy counterfeit watches. On the end of the artist, real art and NFT art are sold for the same reason: someone wants to buy an idea. The tangibility of the art isn't a clear point for utility, because valuable art comes with complex considerations for its preservation and delivery, and in some cases stays vaulted and traded with certificates, which provides a definite negative utility - nobody sees it, yet you have a whole institution around trading it. Arguments against NFT trade ultimately come from positioning the trade network beneath the state and its regulated mechanisms for speculation, when its existence clearly expresses the opposite: the state exists at the network's convenience. Every prison economy knows this dynamic - horses are traded, abuses are not total.

hoseja 4y ago

They are chummy with all the others is the thing though.