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Comment by bb88 | Hacker News Reader

TIL to stop reading the top voted comment if it appears to be outrage and just read the article for myself instead.

Just FYI here's the quote in context. She's posing a hypothetical here and not actually comparing Coinbase to a heroin dealer. This is very much in the style of Matt Levine at Bloomberg, btw.

    If a company went to the FDA and said “hello, we’d like to start selling 
    heroin to the public for recreational use”, and the FDA said “no, you can’t 
    do that”, the company could loudly complain that the FDA was not giving them 
    a path to compliance. People would probably laugh at them.

    The company could decide the FDA was wrong, demand that they and/or Congress 
    write new rules to allow for this innovative new heroin business that would 
    bolster American capital markets, and decide that in the meantime they were 
    going to sell heroin anyway. People might not be terribly sympathetic when 
    it didn’t end well for them.

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Which is a completely flawed comparison, not because of the matter but because unlike the hypothetical heroin case, the SEC *did approve the listing*.

I suppose that is more honest than saying she made a direct comparison between Coinbase and heroin dealers.

Not really because she mentions SEC doesn't evaluate the businesses themselves when they apply for an IPO.

Coinbase doing an IPO (and them using this argument against SEC) is not being compared to heroin.

The comparison is that Coinbase would go to SEC and ask "hey we want to sell these bitcoin futures and securities, is it okay?" and SEC says "nope it isn't" and Coinbase just says "okay we'll sell it anyways", which is exactly what they did.

They knew the law existed and applied to crypto, yet they decided to go against it anyways because they thought they could get away with interpretation shenaningans.

The fact that the listing was approved is immaterial to whether the business is breaking securities law. The SEC is not required to verify that you are running a legitimate business before allowing you to IPO. They are only required to confirm that the data in the forms you mentioned represents your business correctly.

The Coinbase S1 admits this explicitly: they explicitly list the risk of their business model being contested by the SEC later in the document that the SEC approved.

> a completely flawed comparison, not because of the matter but because unlike the hypothetical heroin case, the SEC did approve the listing

The SEC doesn't approve IPOs. In bold among Coinbase's S-1's cover pages: "Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense."

https://investor.coinbase.com/financials/sec-filings/sec-fil...

Nobody reads those boring SEC filings if they can have media reports about companies PR pieces instead.

Heroin is illegal, though?

Still don't understand how the analogy applies to cryptocurrency.

>The company could decide the FDA was wrong...

But why would they decide this? Since Heroin is, again, illegal.

Unregistered securities offerings are also illegal.

No, selling unregistered securities to people who aren't accredited investors is illegal.

Would it have helped if she prefaced it with, "Here's a hypothetical about a company wanting to do illegal things..."?

The style of argument is akin to Reductio ad Absurdum, taking an absurd position to it's logical conclusion. The "absurd position" here is a company wanting to sell heroin on the open market, and she takes that to the logical conclusion.

She could have said "meth", "nuclear weapons", or "dead infants", or whatever instead of heroin to make her point. If you read that as a comparison to Coinbase being a heroin dealer than you're the one editorializing her effort.

Here's another reductio ad absurdum argument:

Let's assume the earth is flat. Either the surface of the earth must go to infinity or people must be walking off the edge of it somewhere.

Youre completely.ignoring the fact that "heroin is illegal" is cut and dry. Securities are not illegal. Selling them without a license is. Asking them to clarify the law and getting told "the law is clear" is not in any way the same as selling heroin knowing it is illegal.

The law is clear. It's not the job of regulatory agencies to advise companies on how to become compliant with the law and their rules. The law and their rules are...the law and their rules! Hire a lawyer for that!

> It's not the job of regulatory agencies to advise companies on how to become compliant with the law and their rules.

Honestly this should be a core mission of all regulatory agencies and the fact that it isn't is a disgrace.

> this should be a core mission of all regulatory agencies and the fact that it isn't is a disgrace

You want public sector corporate law? If we’re socialising law, I’d think we’d start with criminal defense.

I personally don't want tax dollars to fund corporate lawyering.

Theres a distinction somewhere between "socializing law" and "tell me why you'd sue me before I do it accidentally."

The latter isn't a thing so. Especially if, as Coinbase and Binance did, ignore willingly the most basic rules around ypur business because of tech, innovation, disruption and the internet.

About time that reality checks happen.

It would be absurdly burdensome and expensive for the government to have to advise people on how to follow the law when they're not following the law. If you're not sure how to follow the law, get an expert in the law! That's why there's a regulated profession that explicitly provides expert advice on following the law.

I don't want to press too far, because I don't think you actually meant it, but...it's like you're advocating for socialized lawyers. Which is definitely an interesting idea!

> It would be absurdly burdensome and expensive for the government to have to advise people on how to follow the law when they're not following the law.

Isn't this the exact same burden it would be for that person to hire a lawyer? All it would do is require the government to internalize the cost of regulatory compliance, which would increase efficiency by aligning the incentives of the government with reducing compliance costs.

> If you're not sure how to follow the law, get an expert in the law! That's why there's a regulated profession that explicitly provides expert advice on following the law.

Except that they don't actually have the authority to tell you if you're following the law. If you hire a lawyer and they tell you that the law is ambiguous and there isn't any relevant caselaw yet, you still have no idea if you're following the law or not. Meanwhile no one with the authority to make a binding determination will give you an answer.

>If you hire a lawyer and they tell you that the law is ambiguous and there isn't any relevant caselaw yet, you still have no idea if you're following the law or not.

Then you have a couple of choices with various outcomes. One of which is exactly what is happening to Coinbase right now. You can either 100% unambiguously follow the law, or you can push your luck and adhere to what you think either is or should be the law. In the latter case you may become said case law, whether you are able to continue your current ambiguously legal business practices or not!

But that's ridiculously inefficient compared to just going to the regulatory agency before you do the ambiguous thing and having them clarify it. Except that they won't do it.

Coinbase makes their money by working in a grey area. Why should the public subsidize (or reward) Coinbase for their shady business strategy? Why can't it be part of Coinbase's business strategy to remain on the correct side of the law and then lobby congress for changes to those laws?

That's how it's been done for the past two centuries. Why change now?

> Coinbase makes their money by working in a grey area. Why should the public subsidize large businesses in this way?

Because the public through its government is what created the grey area, so it should cover the cost of its lack of clarity, as a disincentive for causing it.

> Why can't it be part of Coinbase's business strategy to remain on the correct side of the law and then lobby congress for changes to those laws?

The entire point is that nobody will say whether they're allowed to do this, so they can't even know if they're on the correct side of the law. How dumb is it that the only way to find out if you can legally do something is to do it without knowing whether you're allowed to?

> That's how it's been done for the past two centuries. Why change now?

The best time to change a bad rule is two centuries ago. The second best time is immediately.

> The entire point is that nobody will say whether they're allowed to do this, so they can't even know if they're on the correct side of the law. How dumb is it that the only way to find out if you can legally do something is to do it without knowing whether you're allowed to?

Isn't that the point of hiring an attorney, or if you're Coinbase, a large team of lawyers? We don't know what Coinbase's lawyers said to them (attorney client privilege). But this could just be a legal ruse, right? Raise doubt? Even though Coinbase knew they were in a shady area and raised it in their S1 filing?

Or do you think Coinbase was really this stupid and naive?

Lawyers can tell you whether an ambiguity exists, not how it will be resolved. To find that out you have to do it and then see if you get punished, which is absurd.

Or avoid operating in ambiguity altogether. It's not really that hard!

Without case law, authorities don't know neither. With the two law suites, Coinbase and Binance, we are goong to find out.

Generally so, if a company works in, or close, to a highly regulated industry it is up to that company to do so in a compliant way. Or generally compliant, there isba tendency of start-ups in Germany complaining about how taxes apply to them as well. If said company is not comoliant, it is on them. And does happen all over the place, to all companies, all the time. For stuff ranging from export, to taxes, to anti-trust and corruption. Only that, say, Lockheed isn't getting any slack when it comes to creative sales techniques.

And compliance costs are costs of doing business. If you cheap out on that, well, ypu deserve what ever is coming your way.

> Without case law, authorities don't know neither.

Authorities are the ones who create the rules. If they tell you what the rule means, that's what the rule means, because it's their rule. That's the point of having them be the one to tell you.

You can write rules without knowing how they'll be broken.

Some people defend themselves by saying they didn't take the action they're accused of, others can cop to the action they took, and argue that the law doesn't apply because x, y, z.

So, like, that's why case law is a whole thing, it extends "the rules" to "here's how the rules have been interpreted in these situations"

> Authorities are the ones who create the rules

The Securities Act of '33, Exchange Act of '34 and Howey Test were not created by the SEC.

Actually the law is not always clear cut and there's a lot of clarifications, appeals, etc that are brought to the regulatory agencies

It is not the government's job to provide free compliance consulting services. Especially not for VC backed companies awash in cash.

I quote from TFA:

    Coinbase also writes in great detail in the S-1 about 
    the risk that the SEC might bring a lawsuit exactly like 
    the one they just have:

        [W]e could be subject to legal or regulatory action in the event the 
        SEC, a foreign regulatory authority, or a court were to determine that a supported crypto asset 
        currently offered, sold, or traded on our platform is a “security” under applicable laws… [W]e could 
        be subject to judicial or administrative sanctions for failing to offer or sell the crypto asset in 
        compliance with the registration requirements, or for acting as a broker, dealer, or national 
        securities exchange without appropriate registration.

        [T]here is regulatory uncertainty regarding the status of our staking activities under the U.S. 
        federal securities laws.

It's pretty clear they knew they were operating in a shady area from their S1 filing -- and so now you're surprised the regulatory hammer fell on them?

Imagine if a company was selling "ground human meat" (see the movie "Soylent Green"). And they did it, well, because the market for ground human meat was suddenly exploding! I mean, in their S1 they might say "Sure this might be illegal, the FDA might take regulatory action against us." But also "Ground human meat is one hot market right now, you don't want to be left out on this rocket that's going straight to the moon!"

Sounds like they expected in advance for the SEC to do something stupid and were very upfront about that fact. Now that the SEC has done a stupid thing they are complaining that the SEC in fact did the stupid thing. Sounds perfectly reasonable to me.

Enforcement agencies don't have to stop you ahead of time, even if that action is disallowed or even illegal.

For example, police officers will regularly sit by the side of the road with a speed gun. They'll make no attempt to stop you driving at 150mph on the motorway but, in the UK, you'll receive a court summons through your door after the fact (and probably lose your license).

They are not required to do so, no.

However, abusing retroactive enforcement does create a pretty clear case that the SEC is not interested in forming a regulatory framework for the exchange of digital commodities - instead preferring to import securities frameworks and punishing participants in the nascent industry.

Why should anyone reasonably believe the SEC has intentions to allow crypto to exist, and that coinage just did it wrong?

> However, abusing retroactive enforcement

Statements like this create a pretty clear case that you haven’t read or shown any real interest in the SEC investigation and litigation related to crypto.

How is this not retroactive enforcement?

The particular product under investigation and or litigation was around for 3 or 4 years, and while the SEC is free to reclassify financial products at will - the fact that they did so and are now attempting to extract company-destroying damages indicates that they did not particularly care.

And if that same policeman happened to be speaking to parliament and was asked whether going 150 mph was legal he would be able to give a clear answer.

A better example is HMRC, the tax authority, in the UK. They won't tell you if your tax avoidance scheme is legal or not, but they will fine you or take you to court if they later decide it is not.

In the US, taxes is one of the cases where you can actually get a letter from the IRS saying "yeah this is probably okay":

https://www.investopedia.com/terms/p/plr.asp

Just reading that, it looks like this isn't free. Essentially, what you're paying the IRS for here is for them to procure legal advice for you (with the added benefit that they'll bind themselves to that for a while?)

However:

> Even with a favorable ruling, a taxpayer has no absolute guarantee of the tax consequences, since the IRS can modify or revoke a previously issued private letter ruling if it is later determined that the ruling was incorrect or inconsistent with the current position of the IRS.

So even with a PLR, you have no guarantees.

Two things:

1. Firstly, if the law isn't settled, then no they wouldn't.

2. The SEC weren't being asked by Congress, they were being asked by Coinbase.

So no, your attempt to torture the analogy doesn't work at all.

The head of the SEC was asked by congress if Eth was a security, and true to form he refused to answer.

I don't understand how anyone can believe these people act in good faith.

> 1. Firstly, if the law isn't settled, then no they wouldn't.

> The head of the SEC was asked by congress if Eth was a security, and true to form he refused to answer.

So what you're saying is that the Head of the SEC refused to answer a question they're not qualified to. Because it's an unsettled area of law that they're now challenging through enforcement action.

> I don't understand how anyone can believe these people act in good faith.

I could ask the same of you.

One way to look at it: the SEC doesn’t decide what is legal. They have an opinion, but it is the courts that decide. This is the process working as designed.

> that "heroin is illegal" is cut and dry

Opiates! Prescribed opiates!

Heroin, as in heroin derivates, are not illegal. That's what a lot of hard, medical painkillers are.

Same goes for weapons in some of the countries with the most restrictions on gun sales and ownership, it is still perfectly legal to sell military grade weapons to the military in those countries.

Funny, how HN seems to qctively failing to understand how regulations and compliance works as soon as they themselves, or one of theirs, is negatively affected by them...

It seems a common "debating" tactic to spend inordinate amounts of effort questioning the analogy and seemingly pretending to not understand what an analogy is.

It depends on what the meaning of the word 'is' is

Then replace “heroin” with “mouldy, maggot-ridden meat” and you get the point.

Brilliant!

In the very next paragraph she explains the analogy:

> These three functions — bringing together securities orders for buyers and sellers, trading securities on behalf of others, and intermediating trades — are typically required to be separate due to conflicts of interest that emerge when one entity controls all of them.

She is saying it is like Heroin.

>> >The company could decide the FDA was wrong...

> But why would they decide this? Since Heroin is, again, illegal.

She is pointing out how absurb it is that Coinbase has decided the SEC is wrong (about the separation of roles) since - as you point out - not having the separation of roles is illegal.

She's comparing cryptocurrency to heroin. The parent's point stands.

It's not "alarmist nonsense", it's just an example of something illegal. And it's not "cryptocurrency" being compared to illegal things, but unregistered security cryptocurrencies. Bitcoin, the biggest name in cryptocurrency, is fine.

Yes well, some claim it's "securities", there is no clear law for that. Can I give you, for example, Amazon shared and get a coffee or a pizza ? Directly, not liquidate it first.

Let's find out how the Ripple lawsuit is going to end, there is good chance to win it.

The woke up one day and they "hey this crypto is a threat to our dollar'. Gensler said "we don't need any more digital currencies, we have USD, EUR, YEN". And that for centuries there was no need to transfer value through more than one medium. That can explain their views clearly.

> Can I give you, for example, Amazon shared and get a coffee or a pizza ? Directly, not liquidate it first.

No, this is specifically addressed by securities law. It's not impossible, but you have to do it properly.

what’s next, are you going to tell me that I can’t realize millions of dollars in crypto gains without paying income tax?

Inconceivable!

You mean tax avoidance ain't legal??? Outrageous!

The article's comparison is made on potential legality.

Reading the comment, you'd think the comparison was on harm or lethality.

She's making the point that for some products there might not ever be a path to compliance. Heroin is an example here because it's really clear what would happen.

It was a valid rhetorical comparison about their business model. The parent wasn't able to read it properly, and just knee jerked their response.

> comparing cryptocurrency to heroin

Which is damn smart given we let regulated persons manufacture and distribute opiates. In this analogy, Coinbase is upset its heroin sales are illegal when a licensed pharmacist can sell a similar product.

If someone is having a strong emotional reaction, substitute any regulated product—jumbo jets, vodka, legal advice—and move on.

> In this analogy, Coinbase is upset its heroin sales are illegal when a licensed pharmacist can sell a similar product.

In this analogy Coinbase' story seems to be that they asked how to apply to become a licensed pharmacist, but never got an answer. While the SEC suggests they never tried.

This gets confusing when the crime is phrased as unregistered heroin sales.

> Coinbase' story seems to be that they asked how to apply to become a licensed pharmacist, but never got an answer. While the SEC suggests they never tried

They got an answer they didn't like: they'd have to change how they did business. (Also, what they list. The SEC issued The DAO Report in 2017.) We enacted the '34 Exchange Act in part to segregate the broker, exchange and custodial functions of securities trading. Coinbase was asking how to become a licensed pharmacist without having to check prescriptions.

> gets confusing when the crime is phrased as unregistered heroin sales

Try "opiate." Coinbase thought they found something new, and asked if it was okay. They didn't think they got a clear answer and proceeded. Now they're crying foul at the lack of prior guidance, or that someone else does have a license. The author's point is that these arguments don't make sense. There may be other arguments that do, but these aren't among them.

No, it's just hyperbole.

Using a much more extreme example to make the point (that companies don't automatically have a right to a path to compliance) obvious.

I think I’ve run into this misunderstanding in my own conversations. The problem is that there are two different lines of reasoning that can look very similar:

A: You say “Z is true of X”, and I respond “Z is false for thing-like-X”, implying “Z is likely false for X”.

B: You say “Z is true”, and I respond “Z is false for Y”, implying not “Y is like X therefore Z is likely false”, but “Z is sometimes false, so we need to actually evaluate whether it’s true of X”.

I think people who use this reasoning would do well to make it more explicit.

(Here, Z is “there must be a path to compliance”, X is Coinbase, and Y – not, I believe, thing-like-X – is heroin.)

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