Hacker News Reader

Comment by bb88 | Hacker News Reader

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.

View on HN

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.

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.

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

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.

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.

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.

> 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.

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"

>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!

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

> 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.

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.

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

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

> that "heroin is illegal" is cut and dry

Opiates! Prescribed opiates!

Reply on news.ycombinator.com