This is such hyperbole. If you're going to trade securities just register properly and follow the regulations. And yes crypto is a security. The SEC is just doing their job when they fail to register yet trade anyways.
The SEC wants to "rule by enforcement", and are doing everything in their power to refuse to define clear rules, because then people would be able to follow them, and the SEC would no longer have the power to leverage enforcement actions against them.
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.
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"
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.
You are seeing this now with the fact that we have not elected anti-regulation people over the past 13 years. And people have preferred to stay with more traditional financial products. So crypto isn't working out in the real world.
If you created a nuclear power plant in your basement that you feel is totally safe, that is great, but a good chunk of the rest of the country wouldn't be comfortable with that and they would expect the government to shut down your nuclear power plant.
You could disagree with them and the government, but it wouldn't work out well for you to invest all your money into your basement nuclear reactor.
You started with claiming it "does not work", but ended with "it's bad investment because the government would destroy you". These are wildly different claims.
https://en.wikipedia.org/wiki/Blue_sky_law https://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_C...
People generally don't want to get scammed, which is why crypto is failing. Obviously we are not talking about the software here. I'm sure plenty of Web3 "software" works just fine, what doesn't work is selling unregulated securities to investors who lose all the money.
You use two distinct definitions of success here. As a means to transfer value beyond governmental control, Bitcoin has succeeded. You can do it any time, provided you are fine with your value stored in Bitcoins.
The other definition is "anybody can use it without the fear of ever being scammed and the regulators can not make using it inconvenient or legally dangerous". This is obviously impossible - the regulators can declare anything they want to be illegal (even the Constitution is only a weak impediment, and it does not have any barriers preventing financial regulation, and as long as people do transactions, they could scam each other. This is absolutely unrealistic and non-sensical definition of "success" - nobody ever could deliver on this, including every existing payment system, where people get absolutely scammed all the time.
But on the other hand, I'm extremely glad I don't live in the USA.
I don't believe the SEC's definition of a security or the rules they put in place are a net good. I would not like to live under the SEC and other US financial regulator's restrictions — not just relating to crypto, but equity crowdfunding, retail derivatives platforms, and more, too. And I would not value the so-called "protections" that target the easiest to apply rules to over the worst offenders, and that have done little or nothing to provide clarity and end regulatory ambiguity. I am not protected from killing myself skiing, or losing all my money gambling, so I should not be "protected" from accessing certain financial assets/products — especially not to the extent and in the way that this happens in the US.
I think many (perhaps almost all) other nations have better definitions around securities, and better, more proportionate, and clearer rules for them (of course probably none are perfect, but that is true of nearly all rules). Some of those countries have even accepted that many of their citizens would like to experiment with these new technologies, and might like to see a different model for their regulation, to allow this experimentation, and tried to create rules to allow this, realising that stability and stasis should not be the goal above all else.
It is a shame to see this direction of travel.
That’s absurd. American markets are preferred by most of the planet. You may choose to keep your money out based on principal, but it won’t be a financially driven choice. It’s like buying a car based on the cars’ color. It’s one aspect but not one of the more important aspects. For most people, the criteria would be returns vs risk. American markets are relatively low risk and high return, even if we aren’t very democratic lately.
In many countries, gambling is heavily regulated. Not everybody can gamble, not everybody can offer gambling services, and there are rules and disclaimers on tickets/entries/whatever.
Similarly, yes you can ski anywhere, but some companies included waivers and disclaimers if e.g. you want to use their lifts or slopes or services.
Point is, even the best examples you came up with aren't actually a clear-cut case of "you can do whatever you want, it's on you, with no regulations or warning or protections".
At their best, regulations are a collective "We tried this, it sucked/harmed people, ouchie, let's not do it again". They ARE a "Let's learn the hard way" but on a societal scale. It is, to me, insane to take an unpragmatic, extreme, libertarian way of "everybody should learn from their own mistakes only".
(at their worst, of course, regulations are oppressive, ridiculous, overly complicated, serve limited or counter purpose, ambiguous, overbearing, and growing ad infinitum:)
Saying you haven’t done it and not letting you do it is a bit of a catch 22.
And none of this addresses the defi ecosystem either. As an end user, can I access a defi app deployed by a non-US entity?
Look at Telegram. They tried to use Reg D to sell the initial SAFTs, and restricted it only to millionaires, so clearly they were the type of “accredited investor” the SEC wanted.
Well, Rule 144 says after a year of holding, these millionaires could sell to anyone. Read section 4a(1) of the Securities and Exchange Act. But, somehow, the SEC got Telegram to abandon its plans and return all the money. Because the SEC argued that TON itself was a security, not a commodity, they said that it cannot be sold to the public.
What if the investors were the ones selling, and not TON? If they are not AFFILIATES of TON, purchased without a view to resell, held them for a year, then why can’t they resell a few here and there? They are not considered underwriters under Section 4(a)1. Even most states allow such sales. Not to mention that the new Reg D after the JOBS Act pre-empts state laws for the primary sales, so I am not sure the states could easily win a case.
I followed that case and it was never really clear what securities laws Telegram broke by making a Reg D filing and a SAFT. Maybe someone here can explain, if you actually read the case also.
Now the decentralized TON community is building it instead.
https://www.coindesk.com/markets/2020/04/12/making-sense-of-...
It isn't that the SEC "isn't allowing you to register." It's that crypto exchanges can't/won't properly register.
To put it more abstractly, it makes perfect sense for not all securities to be capable of becoming registered securities.
Coinbase was founded, from day one, to be the most compliant cryptocurrency exchange in the US. They have hired massive teams of former lawmakers and regulators to try to navigate the path to get cleared by the SEC. If Coinbase hasn't been able to do it, how could any other company reasonably expect to do it?
I expect that when Coinbase eventually responds to this, likely in the next few minutes, the response will contain the full timeline of everything they've done to try and register. I've been listening to their lawyers get interviewed on podcasts and seen the countless blog posts they've posted about trying to get anything from the SEC, which has been entirely ignored. It's pretty infuriating. The SEC needs to label Coinbase as some lawless entity that refuses to follow the rules, when nothing could be farther from the truth.
Perhaps the answer is "it can't be done"?
If I tried to start "Uber for Hitmen", and I couldn't find a legal path past regulators, that's because the business model itself is illegal, not because regulators meanly refuse to tell me how to legally murder people.
> ... if various crypto assets are deemed securities, Coinbase would therefore need to register as a securities exchange, in order to keep offering trading in those assets. ... Furthermore, under current securities law, securities exchanges are not permitted to offer services directly to retail customers, and Coinbase could theoretically be forced to separate the exchange and broker portions of the business.
https://www.cnbc.com/2023/04/18/coinbase-ceo-says-it-is-prep...
And yet, despite how they spin it in press releases, their _filing_, which is where the rubber meets the road, says nothing about "figuring out how to register", but rather says that "for many tokens, registering is not possible due to effort involved, or not economically viable" (surprise, surprise, Coinbase doesn't want to absorb the cost of registering securities when it comes to the Shitcoin of the day).
In other words, "we know how to register these tokens as securities - but our business model doesn't make it possible to do so profitably".
You would also get into serious trouble if you would sell a drug without approval from the FDA, and they might deny your application because it isn't fit for purpose. Same with the SEC just because you want to register your crypto security does not mean that they have to be allowed on the US market.
And the ATF with pistol braces.
It's a standard regulatory tactic at this point.
It is notable that the crimes here are victimless. I don't recall if I have ever bought anything on Coinbase; but the VIOLATIONS section of the complaint isn't accusing them of anything I care about in my capacity as a crypto trader.
All shows like Yu Gi Oh, Pokemon, etc. have been running, technically speaking, unregistered securities offerings throughout the world and United States, yet the SEC does nothing. They are textbook cases of the Howey Test:
1) People (kids, in fact!) buy Yu Gi Oh trading cards
2) There is an investment of money (either they nag their parents, or they actually spend a non-trivial proportion of their own life savings)
3) With an expectation of profit. Witness how many of them don't actually use the cards, but keep them in mint condition (and as we have seen SEC successfully argue in the recent case SEC vs LBRY, if even a few people buy with expectation of profit, then ALL those sales are securities).
4) From the efforts of others -- namely the producers of the show, and their promotion of Yu Gi Oh trading cards. Trading! Perhaps even selling!
5) There is definitely a common enterprise, that isn't even decentralized. The Yu Gi Oh show is produced in Japan and shown in the USA, and drives the sales of the cards. Cancel the show, and the cards fall in price.
Yu Gi Oh Abridged series even lampooned this, to great comedic effect.
Oh those foreign-owned Japanese companies, preying on our kids selling them investment contracts! Do they really think the kids are sophisticated investors who think things through when they keep their mint-condition cards! Who will buy the top and be holding the bag after the show is canceled?
So being a textbook definition of Howey, why did the SEC never go after Pokemon, Yu Gi Oh and any of the other "merchandising" companies? How about Marvel with their mint-condition comics? Isn't that a "common enterprise" since some people buy comics for their investment value?
Because they don't have a market cap over a trillion dollars.
Any securities lawyer worth their salt will tell you that mere possible utility does not make something not a security. The distinction of “utility token” vs “security token” is not an official dichotomy. Something could be a utility token AND STILL be sold in securities sales.
For example, concert tickets are useful to attend a concert. But if you buy thousands of them, and scalp them, you aren’t doing it to attend a thousand concerts. You’re doing it to resell and make a profit. You have a common enterprise with the people putting on the concert.
Similarly if you buy too many utility tokens for you to conceivably use in the next few years, that could be a securities transaction by the Howey Test.
Look no further than LBRY case recently decided in SEC’s favor. I read it and spoke to the founder recently (randomly met him in a car shop LOL).
And I am not even talking about the Risk Capital test, used in California and a dosen other Western states, by which most Kickstarter campaigns are technically unregistered securities sales!
That's like saying "The USD is used as fuel for the US economy." Even talking about more crypto-concepts as gas fees doesn't negate this. It's not some "other purpose" and courts won't buy such disingenuous spins.
What level of detail do you want?
People have a need to secure their transactions from double-spends and stealing etc. I personally think blockchains are a first-gen technology but the network requires ETH to pay for transactions. What is your point?
But about whether it can never be considered a security? In theory I agree with you. Just because something has utility, doesn't mean it's not a security by the Howey test. Today the SEC says one thing (ETH is not a security). Tomorrow under different leadership they can turn around and say it is. Good luck convincing a court, though.
And Howey is just on the federal level! As I have already said -- most Kickstarter campaigns are actually unregistered securities offerings, according to the Risk Capital test of California and a dozen other states:
https://www.cuttingedgecapital.com/what-is-a-security-and-wh...
Proceed at your Peril: https://ir.law.utk.edu/cgi/viewcontent.cgi?article=1828&cont...
Silver Hills case established the Risk Capital test:
https://www.jdsupra.com/legalnews/silver-hills-doesn-t-mute-...
And in fact, nearly everything can be a security if you try hard enough:
https://www.linkedin.com/pulse/everything-security-chris-har...
So "how it works" is whatever the system happens to come up with in court cases and precedents. The definitions vary from jurisdiction to jurisdiction and are vague as it is. After all, capital invested into anything is "put at risk", even if by the Howey test it's not. While in Singapore, the definition of security is a lot more narrow. And FINMA in Switzerland seems to have a much more sane system specifically for tokens:
https://www.finma.ch/en/news/2018/02/20180216-mm-ico-wegleit...
This is why blockchain and Web3 innovation is leaving the United States
That is not a common enterprise. Where is the role of the "investor" (purchaser of the cards) in this enterprise?
Can you link to an authoritative or reliable definition? Or case law? Really anything? That would tive us a basis for discussion. Merely claiming “it’s not a common enterprise” cause it’s your feeling, is a weak defense if SEC were to bring a case.
> In order to satisfy the "common enterprise" aspect of the Howey test, federal courts require that there be either "horizontal commonality" or "vertical commonality." See Revak v. SEC Realty Corp., 18 F.3d. 81, 87-88 (2d Cir. 1994) (discussing horizontal commonality as "the tying of each individual investor's fortunes to the fortunes of the other investors by the pooling of assets, usually combined with the pro-rata distribution of profits" and two variants of vertical commonality, which focus "on the relationship between the promoter and the body of investors"). The Commission, on the other hand, does not require vertical or horizontal commonality per se, nor does it view a "common enterprise" as a distinct element of the term "investment contract." In re Barkate, 57 S.E.C. 488, 496 n.13 (Apr. 8, 2004); see also the Commission's Supplemental Brief at 14 in SEC v. Edwards, 540 U.S. 389 (2004) (on remand to the 11th Circuit).
The buyers are depending on the efforts of others (the show producers and promoters) to make their cards worth more.
What is your point? That definitions are irrelevant, and anyone can claim any combination of words ?
Legal terms often have idiosyncratic definitions shaped by case law, and you can’t simply use basic English understandings of terms like “common enterprise”.
Even in plain English “common enterprise” could have a variety of meanings, and sayjng “that is not a common enterprise” is super problematic.
In the case law, there is a clear precedent of hundreds of cases of having a “promoter”, and you are “depending on the efforts of others” to tout the security, and you are “in common enterprise” with that promoter EVEN IF you have never met.
If the Yu Gi Oh franchise stops doing the show, that affects your sales. See above, the actual defintion posted… and you will see that, in fact, Yu Gi Oh and Pokemon definitely has a common enterprise in the legal definition of the term
Look through my comment history -- do I strike you as someone who dances around a point, or minces words? I am telling you how it is: you seem to be uninformed on how the US legal system works. Courts can't be used as "test suites" that you can just spin up, and legal jargon isn't the same as plain english, nor is it like code that you can just test for a binary outcome.
What you're suggesting is that I waste my time petitioning the SEC to look into Yu Gi Oh or Pokemon, which operated unregistered securities schemes 20 years ago, and they had ample opportunity to look at. I would be one of hundreds of thousands of such petitioners. They would they consult their own appetite for going after them in courts, which they clearly have none for. They care about crypto, they don't care about trading cards and children's shows, pure and simple. They are exercising their discretion in who they go after.
And by the way, the actual definition that was posted above, from their official site, is what you'd call vague:
The Commission, on the other hand, does not require vertical or horizontal commonality per se, nor does it view a "common enterprise" as a distinct element of the term "investment contract."
You could see why, in the face of such vague and amorphous language, a ton of things could be considered "a common enterprise", so the assertion "Yu Gi Oh definitely doesn't have a common enterprise" is laughable. If the SEC wanted to, they'd argue that it does. The definition is extremely vague.
The pseudo-intellectual bullshit is actually when you refuse to have consistent definitions, and just drone on about various things. New-Age practitioners or post-modern feminist or other movements have done this. Requiring people to be clear and define terms that sound vague is a basic requirement in math, science, and general rational discourse.