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Comment by awb | Hacker News Reader

Public article:

https://www.coindesk.com/policy/2023/07/31/sec-asked-coinbas...

> “They came back to us, and they said . . . we believe every asset other than bitcoin is a security,” Armstrong said according to the FT. “And, we said, well how are you coming to that conclusion, because that’s not our interpretation of the law. And they said, we’re not going to explain it to you, you need to delist every asset other than bitcoin.”

> Armstrong said the SEC recommendation left us no choice but to head to court.

> The SEC told the FT its enforcement division did not make formal requests for “companies to delist crypto assets.”

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In fairness it sounds like, at least from the FT article, that they are saying "stop or we're suing".

Which at least is a reasonable thing for a regulator to say.

I'm not precluding who is right and wrong here, just that the form of the request is not crazy.

In general, "stop or we're suing" is a reasonable thing for a regulator to say. But in this particular case "every cryptocurrency is a security, except Bitcoin" makes zero sense. Why wouldn't Bitcoin be a security?

It would make infinitely more sense if they said "Going forward, our interpretation will be that all cryptocurrencies are securities, and you'll need to become a real brokerage/exchange. Do this or we're suing." That would provide space for reasonable people to disagree, work it out in the courts, lobby Congress to legislate around the topic, etc.

But this version is non-sensical -- I simply can't imagine any reasonable persons would ever come to a meeting of the minds that Ethereum is a security but Bitcoin is not a security.

I agree. The only difference I can see is that Bitcoin never had the crazy fund-raising schemes and marketing blitzes that a lot of alt coins had. Same with the original ETH.

A federal judge recently ruled that XRP was a security when sold in some contexts but not others. And what coinbase is doing (at least with their basic trading platform, I know they have more questionable stuff going on as well) sounds like it wouldn't be a security for any coins.

> The court found that the “Programmatic Sales” did not satisfy Howey’s third prong because such buyers could not reasonably have expected that Ripple would use the proceeds of the sales to improve the XRP ecosystem and thereby cause an increase in the price of XRP. Citing SEC v. Telegram Group Inc., the court stated that this inquiry turns on the “promises and offers made to investors” and not each buyer’s motivation, making the blind bid/ask aspect of the transactions a key consideration. Ripple did not make any promises or offers because it did not know who was buying the XRP, and the purchasers did not know who was selling it.

https://www.mondaq.com/unitedstates/fin-tech/1348902/sdny-ru...

The word "formal" is doing a lot of lifting, here.

> word "formal" is doing a lot of lifting, here

As is the headline's "CEO says." This article is based on the anecdotes of a person being sued by the SEC.

CEO: "I can't believe they didn't give us a free pass even though we hired all these expensive lawyers and promised the SEC guys that we'd also give them cushy jobs in a few years. Truly the US has become hostile to world-changing innovation such as myself buying a $50 million house. Did I mention I've been selling a lot of my shares lately? I didn't? Good, don't print that."

> “In the course of an investigation, the staff may share its own view as to what conduct may raise questions for the commission under the securities laws,” it added

Didn’t nearly all main SEC personnel publicly say that Ethereum is not a security?

Hinman and SEC pushing him to say it: https://blockworks.co/news/sec-hinman-eth-not-security

SEC chair Gary Gensler: https://decrypt.co/138334/gary-gensler-sec-ethereum-not-secu...

SEC prev chair Jay Clayton: https://finance.yahoo.com/amphtml/news/us-sec-chairman-jay-c...

Hester Pierce “crypto mom” ironically has never explicitly stated a position on Ethereum

What are they going to do now, backtrack on their own public statements?

They might believe their prior statements on the matter no longer apply since the transition to proof-of-stake? (I am not saying this is a good argument, but it is one I think I have seen people come up with.)

Yeah but their whole thing is that the specifics of the technology don’t change how securities laws apply. They’d likely claim both the miners and the stakers need to form an organization and have somebody responsible for compliance, if their proposed rules on altering the exchange definition is any indication.

I’ve have the unpleasant task of interacting with auditors from the SEC regularly in a heavily regulated industry. Trying to get any sort of real, factual guidelines from them is a fool’s errand.

Their auditors views and interpretations vary wildly year to year, and they will not provide any written guidelines for their positions. Instead they insist it’s up to the discretion of the individual auditor. I’ve seen fairly reserved people in screaming matches by the end of it all, and concessions will eventually be made which seems strange for a regulatory body to do.

All that is that say, they won’t backtrack on anything. They’ll simply say that those were the views of those people as individuals, and they are not reflective of the official stance of the regulatory body.

I'm not doubting anything you're saying, but are there examples of such problematic behaviors in the public record?

The entire cryptocurrency space is filled with genuine grifters and conmen.

It’s absolutely reasonable to doubt anyone making unsubstantiated and unverifiable claims in this space.

When I said problematic behavior, I was referring to this:

> Their auditors views and interpretations vary wildly year to year, and they will not provide any written guidelines for their positions.

That's why I started with the disclaimer that "yes I know crypto it's a scam", but the regulators also seem to be making it difficult to stay compliant.

Public record being official statements from business or government entities? I’m not aware of any personally.

Really I feel like I should clarify the above since I wrote it pretty late at night, and it I don’t think I really summed the experience up well. Another commenter mentioned their experience with other regulatory bodies that really cuts closer to what I intended to say:

“While I have no experience in dealing with the SEC, I do in dealing with EASA and SOX audits. One common theme, both give you the barebone rules as written, and it is up to you to figure out how to follow them.”

That really is my entire complaint. The grey area of what “counts” according to an auditor will vary over time, and what might count one year will suddenly be inadequate the next or vice versa.

Ha! So true. And there would be huge savings if they would both simplify things and focus much harder on substance

Assuming that the regulated entities wouldn’t just move to the hinterlands and edge cases of that newly simplified/clarified/substantiated law in order to skirt it.

Which, of course they would, and would go so far as to create new forms of currency to try to do it.

> they will not provide any written guidelines for their positions

They legally can't. That's rulemaking. There are formal processes for government agencies issuing binding guidance.

There is a real problem with ambiguous laws. But asking the SEC to be your lawyer is a bit of a fool's errand. Coinbase absolutely knew they were breaking the law when they set out; they, and the rest of crypto, just hoped they could change it before they got caught.

While I have no experience in dealing with the SEC, I do in dealing with EASA and SOX audits. One common theme, both give you the barebone rules as written, and it is up to you to figure out how to follow them. In case of EASA, you define your own processes, and auditors sign off on those. You can hire external consultants to help you, but in the end it is your responsibility.

In case of SOX, you are required to have one company doing the prep work (processes, controls, internal "audits") with you, while another company does the formal audots and signs of on the balance sheets and financiap results. The latter wont give you any guidance neither when it comes to how compliance can be achieved.

And in both cases, there are always people that refuse to accept the well established guiderails and limits, when those are explained to them. Excuses range from inconvenient to I-do-not-want-to to "but what about innovation". Which is just bonkers, because both, SOX and EASA basically allow you to write your own internal rule book, and still people are not happy. It seems following rules is just below some people and their egos. Not that auditors care so.

Ah, once again, the "No Backsies of informal statements" law.

Note that all of these are a long time ago, and even if their offhand opinions were legally binding the "strongest" of these articles

> had stated in a speech that ETH “in its present state” — as opposed to during its distribution via initial coin offering (ICO) — won’t be regulated as a security.

> Chairman Clayton noted that he agrees that a digital asset’s definition as a security is “not static” and thus can change over time.

Things have obviously changed. Also, the way Ethereum works has changed.

> Didn’t nearly all main SEC personnel publicly say that Ethereum is not a security?

No. Your first article cites Gensler's statements from 2018; he took the helm at the SEC in 2021 [1]. The second somehow draws conclusions from a letter Clayton wrote "without ever mentioning ETH directly" [2].

> What are they going to do now, backtrack on their own public statements

Moot point. When the SEC sued Coinbase, it didn't mention Ethereum. This entire line of argument is a red herring.

[1] https://en.wikipedia.org/wiki/Gary_Gensler

[2] https://finance.yahoo.com/news/us-sec-chairman-jay-clayton-1...

I will note on top of what other commenters have said to this, that most (all?) Of those statements were made before Ethereum went to Proof Of Stake, which has implications for centralization and control.

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