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Saying "just register properly" is insane at this point. Coinbase has spent millions in legal fees over the past decade trying to get the SEC to publish how to

• linuxftw 3y ago
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  • enraged_camel 3y ago
    Yeah, the whole “we tried to get them to tell us how to do it!” thing is a very weak defense.
    • px43 3y ago
      Coinbase Staking, the specific service that the SEC is going after here, is obviously not a security. It's a hosted custodial wallet, and Coinbase provides delegated staking. IMO Coinbase lawyers are about to eat the SEC alive.
      • ceejayoz 3y ago
        The Howey test sets out four points: * An investment of money - check (into the staking pool) * In a common enterprise - check (the staking pool) * With the expectation of profit - check (obviously) * To be derived from the efforts of others - check (the manager of the pool) It's a security.
        • taeric 3y ago
          Does my putting money in a certified deposit at a bank count as a security? Note that that one is interesting, as their are brokered cds, and those are definitely treated as securities. And then their are plain interest bearing savings accounts, and those are not? (Or are they all, nowadays?) (And yes, this is no different than a loan that you give out not being a security, but loans can be wrapped up in forms that are considered securities.) I suppose you can argue it is one of scale? If I loan money to some friends in the condition that they pay me back with interest, nobody cares. If I set up an exchange so that many people can do this, it gets interesting.
          • ceejayoz 3y ago
            From Coinbase's page about staking: > Staking requires assets to be locked on the protocol in order to earn rewards. This is not true for my savings account. As for loans, Reves v. Ernst & Young established that "a note is presumed to be a security unless it bears a strong resemblance, determined by examining four specified factors, to one of a judicially crafted list of categories of instrument that are not securities". That list of exemptions includes mortgages; it does not include cryptocurrency staking.
            • taeric 3y ago
              But non-brokered CDs are also locked, and are not considered securities.
              • ceejayoz 3y ago
                You have Marine Bank v. Weaver (and FDIC insurance) to thank for that. > We see, therefore, important differences between a certificate of deposit purchased from a federally regulated bank and other long-term debt obligations. The Court of Appeals failed to give appropriate weight to the important fact that the purchaser of a certificate of deposit is virtually guaranteed payment in full, whereas the holder of an ordinary long-term debt obligation assumes the risk of the borrower's insolvency. The definition of "security" in the 1934 Act provides that an instrument which seems to fall within the broad sweep of the Act is not to be considered a security if the context otherwise requires. It is unnecessary to subject issuers of bank certificates of deposit to liability under the antifraud provisions of the federal securities laws, since the holders of bank certificates of deposit are abundantly protected under the federal banking laws. We therefore hold that the certificate of deposit purchased by the Weavers is not a security.
      • smeej 3y ago
        This is one of the things at issue, but far from the only one. And Coinbase does not provide delegated staking in the way that Kraken did, for example, where funds were pooled and rewards distributed proportionally. The difference is technical and detailed, but very important.
        • px43 3y ago
          Yes, the way Kraken was doing it was super sketchy. Basically you give them your money, and they give you some regular APY. Very reminiscent of a ponzi scheme. Coinbase did it right, structuring it as a staking service. Staking is something that anyone can do, but it's a pain in the ass. Coinbase make it easy by letting you stake assets, and they run/monitor the staking nodes for you, and as service fees, they take a cut of the rewards (which fluctuate moment to moment).
    • gitfan86 3y ago
      Yeah, but it was their best option. If they got lucky or bribed the right people they could have got their assets listed as non securities due to a technicality.
  • px43 3y ago
    Take a moment to look into it. Coinbase has hired the top legal team in the world on exactly that topic. They know the case law. The SEC has consistently refused to respond to any queries for clarification on what Coinbase can do to ensure compliance.
    • hef19898 3y ago
      So, Coinbase wanted to convince the SEC they are not a securotoes exchange. The SEC didn't buy it. Instead of going forward and properly register, Coinbase choose to continue operating under their own interpretation of the law. Now the SEC sued, tool them long enough, and we will find out who of those two is right. If I had any money with Coinbase or Binance, I pull it out ASAP.
    • pavlov 3y ago
      Coinbase hired a top legal team to avoid regulation. You're parroting the story that those expensive lawyers have concocted as justification for their efforts to avoid enforcement while the company was busy selling unregistered securities.
    • vegardx 3y ago
      Or Coinbase hired the best legal team in the world to seed confusion because they never wanted or intended to register, but needed a hypothetical position to defend against journalists and skeptics. Obviously a wild conspiracy claim. But then again we're talking about fintech.
    • FireBeyond 3y ago
      They have hired the top legal team in the world with the specific remit of "get us the answers that are easiest and cheapest for Coinbase". That is entirely tangential, if not orthogonal to the subject of "define securities". I mean from Coinbase's own filing. "The SEC has stated that digital tokens are securities. We disagree..." and "registration under the current rules is, for many market participants, either not possible or not economically viable given the associated and unnecessary compliance burdens" It's not that Coinbase disagrees that they're securities, as such. It's that they say it's too much work or cost to do so.
  • gabereiser 3y ago
    Those decades of case law still don’t clarify the rules, they only clarify what isn’t allowed. The actual rules have yet to be published, for good reason, because it would limit the SEC’s cartel. By NOT having rules, they can claim something is “illegal” and have the weight of the US federal government to bully with. By defining what is legal and what is not will allow smarter folks to game the SEC to their advantage. Coming up with securities that meet the definition but are different than what the SEC is aware of. This is all about knowledge and power. Keeping it in the SEC’s court. Keeping it in the SEC’s control.
    • 2devnull 3y ago
      Well then it’s known risk. If it was known risk that the alleged perpetrators didn’t accurately account for, that’s on them isn’t it? I agree with the general complaints about unconstitutional power, but when you know the SEC operates a certain way, and you try to get around that by throwing massive amount of money/lawyers at the problem, are you really a victim?
      • smeej 3y ago
        Please read the actual Petition for Rulemaking Coinbase filed in July 2022. It is extensively footnoted about how the "decades of case law" don't apply to this new thing that has only existed for 1.3 decades and was designed around the existing laws on purpose. That is, read it if you actually want to understand the situation. (PDF) https://assets.ctfassets.net/c5bd0wqjc7v0/5NRidtW8lvwVEfSHpndWQm/78f95afa4f0ebaaefb303e1a4f172d03/Coinbase_petition_for_SEC_rulemaking.pdf https://assets.ctfassets.net/c5bd0wqjc7v0/5NRidtW8lvwVEfSHpn...
        • jcranmer 3y ago
          I skimmed the document to go directly to the questions Coinbase is asking, and really, the first question is: > Are the Howey and Reves tests the appropriate tests for determining whether digital assets are securities? Which makes it pretty clear to me that a) Coinbase is aware that the Howey test applies to cryptocurrencies, b) Coinbase is aware that many cryptocurrencies are likely to be classified as securities requiring registration by the Howey test, and c) they want the SEC to change its regulatory position so that is not the case. Skimming many of the remaining questions, it is striking that Coinbase isn't complaining about a lack of clarity in the current regulations, they're complaining about what the current regulations require them to do.
  • jb1991 3y ago
    This is peak HN. A casual commentor in a thread who thinks they know more about the law than an entire legal team at a public company.
    • nickpp 3y ago
      Not that uncommon, I'm afraid. Check out the GDPR threads: there is a huge difference between the people who discussed implementing it with lawyers and the general public.
      • orwin 3y ago
        And there is a huge difference between the people who 'discussed implementing it with [american] lawyers' and people who actually worked with EU watchdogs and implemented changes.
        • nickpp 3y ago
          No idea about that, as I am in the EU. What kind of advice did you hear from American lawyers?
    • linuxftw 3y ago
      The facts are the SEC thinks Coinbase ran afoul of the laws and regulations around securities. Coinbase has been trying to get the SEC to either explicitly or implicitly allow Coinbase's operations, and the SEC declined to do so. They probably went through several legal teams before they found one that could be willing to try some wild strategy, or they were willing to take the Uber approach and break the law and cash the checks, hoping to outrun law enforcement and lobby for the laws to change. Yeah, I can see they're trading in unregistered securities, and they're going to have the book thrown at them for it. Anyone that's not a crypto fanboy can see they were trading in unregistered securities.
    • 2OEH8eoCRo0 3y ago
      And you think you know more than the SEC
• CPLX 3y ago
  The problem is their business model is illegal. The idea that they need “guidance” is another way of saying if we follow the clear law what we want to do is impossible so can you help us with that. The SEC answer has been yeah no we can’t solve that problem for you. It’s all on the first few pages of the linked complaint, they didn’t register as a dealer, broker, clearing house, and so on, because the would instantly be on the wrong side of all sorts of regulations for what those institutions are allowed to do. They don’t want clarity. They wanted waivers. They wanted the SEC to say crypto is different so you don’t have to do XYZ. The SEC said no.
  • gitfan86 3y ago
    Yes, it would be like a married man asking his wife for a list of things that count as cheating so that he can be sure to avoid doing anything she wouldn't approve of. Very few women would respond, "here is the list, if I forgot anything it is totally my fault and not your fault for doing something that is technically not on the list"
    • CPLX 3y ago
      That metaphor is a start. More accurately it would be like a married man asking his wife for a list of things that count as cheating while openly fucking prostitutes and fathering multiple children and bragging about it.
    • smsm42 3y ago
      Except that marriage is a voluntary relationship of mutual cooperation and trust. Regulation is an involuntary relationship of coercion and enforcement. The least the coerced party may as for is to know what it is going to be punished for, what are the rules of the game. And if us, and always have been, the "fault" of the legislature and law enforcement if somebody does something lawful but they didn't like it. That's how law works in a legal culture we used to have - whatever is "technically" on the list, is not legal, all the rest is legal, and ghe burden oc proof is on the state. You would not like the alternative.
      • 3y ago