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.
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 do exactly that, and the SECs repeatedly refused to clarify how to do that. So much so that Coinbase sued the SEC for ignoring process in April, and Gensler got pulled into a congressional hearing a couple months ago where several congress people attempted to get him to clarify rules, and he refused to do so.
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.
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"
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.
Except the USA is a democracy. If a Orange reality tv star can be elected president, a crypto person could be as well. But most people don't want "code is law".
I guess this is a five-star effort in the category of "make any discussion about Trump because I can't talk about anything else". Any on topic comments to follow?
No, this is the same point I've been making since 2010. Having libertarian ideas like "code is law" and "money should be decentralized and permissionless" sound nice in theory, but in the real world they don't work very well.
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.
Well, if US regulators can destroy any company in crypto space in a couple of days, and are willing to do so, then it's hard for it to "work out in a real world". If the regulations are "just don't do anything bad, and we'll tell you what's bad after you do it and invest billions in it" then it's hard for it to "work out". If the users are asked to invest into assets that can be wiped out of existence by regulators at any minute, then it's hard for it to "work out".
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.
That would not mean "nuclear power does not work". That would mean "people do not want it, whether it works or not". Except here it's not "the rest of the country" but a bunch of unelected bureaucrats which 99% of the country doesn't even know exist, and certainly didn't ask them to do anything.
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.
Bitcoin was created specifically to prevent the government from controlling money supply, by creating an alternate form of money. The idea that it isn't succeeding because unnamed bureaucrats is misleading. The SEC and other regulatory frameworks exist today because of laws created over decades. Those laws were created to protect people, after many people were scammed.
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.
> The idea that it isn't succeeding because unnamed bureaucrats is misleading.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
So...just going to skip the part about actually reading the footnotes? I just want to be clear on whether to consider you to be someone who has taken the time to inform themselves about the matter.
At your behest, I did go to the footnotes. And my read of the footnotes is not that they're an extensive citation of case law to justify their points. (There's just 5 cases cited). Most of the footnotes are citations to various other exhortations that essentially amount to "we think existing financial regulations are too onerous for cryptocurrency companies, please loosen them." Again, there's very little "we think the regulations are unclear," but rather a lot of "we can't do what we want to do under these regulations, please loosen them."
Coinbase's opinion on the matter is pretty irrelevant to determining what is and isn't a security. The fact that they tried to get the SEC to tell them what they were doing was or wasn't allowed (never mind the fact the SEC likely had an ongoing investigation that prevented them from commenting in the first place) is wholly irrelevant to the fact they were actively breaking the law.
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.
Disputing the claims that a self-interested party makes doesn't mean you think you're smarter than them. It's okay to disagree with people; even lawyers and rich people.
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.
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.
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.
> In a common enterprise - check (the staking pool)
I'd take issue with this one. Is the "common enterprise" here supposed to be Coinbase, or the Ethereum network itself?
The Ethereum network offers financial incentives for supporting the distributed infrastructure. In order to ensure good behavior, an amount of "stake" is required to keep people honest, such that dishonest people get their stake slashed. Coinbase provides a nice handy UX where Ethereum holders can stake their assets using validator nodes operated and maintained by Coinbase for a small cut of the staking rewards.
> Is the "common enterprise" here supposed to be Coinbase, or the Ethereum network itself?
Coinbase, and Coinbase's pool(s). As you cite, "using validator nodes operated and maintained by Coinbase". Coinbase and the staking users are engaged in a common enterprise for mutual profit.
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.
> 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.
I'd say that "locked on the protocol" is functionally equivalent to having money in a bank account, so yeah it is true for your savings account. You can still take it out (aka "unlock" it) at any time. The staking/unstaking process is just an on-chain event that requires the staker to have custody over the ETH. No different from a deposit or withdrawal from a bank account.
This is different than a lot of other DeFi which does not require any external custody.
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.
The test still applies. So do the exemptions to it (some established by Congress, others by judicial action). There's no exemption for cryptocurrency staking pools.
Perhaps Coinbase's eventual appeals will establish one, but I doubt it.
This is how the system works. "Code is law" does not apply to actual law; it's a long history of interpretation, wiggle room, precedent, legislative intent, and common sense being applied in various amounts. It works pretty well, all things considered; far more than trying to explicitly write down every little edge case.
Ah, completely agreed. But we can't lean on "it is easy, the Howey test explains all" without a huge caveat.
I will note that this particular path is treading on the "lets write down every edge case." As such, it would be better to have a slightly stronger guideline than that. Specifically, when the law is "this test, except for specific carve outs that all fail the test", that is a pretty bad law. Unless there is some unification of the carve outs other than "we decided these don't apply."
The "decades of caselaw" specifically includes instruments that "failed" the test but were still judged to be non-securities. So, it makes sense to push for a legislative/regulatory judgement.
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.
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).
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.
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.
For what it's worth, I don't think some of your examples are fully on point.
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:)
“ think many (perhaps almost all) other nations have better definitions around securities”
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.
>Saying you haven’t done it and not letting you do it is a bit of a catch 22.
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.
If someone invented a new thing that was possibly but not definitely a drug requiring FDA approval, and the FDA refused to make an explicit judgement on it for years as it grew to a huge industry, then eventually brought down the hammer, that would be a bad process. The courts may agree with the SEC that Coinbase sold unregistered securities, but they had the opportunity to clarify the law years ago, and Coinbase has been earnestly seeking clarification.
The NFA rules making no sense not withstanding, the pistol brace one is particularly egregious as they explicitly said it’s legal in a prior determination and there’s millions of them in circulation.
A better analogy is that you would get in serious trouble selling a drug without approval from the FDA at the same time the FDA has never approved any drugs. It is clear to anyone who understands what is happening that the US government and our faltering financial system is desperate to eliminate crypto all together, and will throw up so many legal and regulatory hurdles that even if crypto technically remains legal it won't be worth the risk or the cost.
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.
Please take a moment to look at anything that Coinbase legal has put out in the past few years. They have desperately been trying to figure out how to register, to the point of suing the SEC to get information, and the SEC has time and time again refused to provide any information about how to do that.
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.
> If Coinbase hasn't been able to do it, how could any other company reasonably expect to do it?
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.
> They have desperately been trying to figure out how to register, to the point of suing the SEC to get information, and the SEC has time and time again refused to provide any information about how to do that.
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".
The problem is that, if cryptocurrency tokens are securities, Coinbase's business model is illegal under current securities law.
> ... 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.
Sure, I can found a drug marketplace selling all drugs and try to be the most compliant of those. Those intentions in no way require that the government just change the rules to allow me to do whatever otherwise illegal thing my business requires.
The only way the US government can effectively enforce their regulations is to kill the exchanges and then try to make sure that organic trade can't happen. How else can they exert control over something like Monero except attempt to kill it? What is option B? It is not hyperbole to observe the obvious; something has to give.
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.
There’s a list of coins that coinbase has sold that the SEC considers securities on page 33 of the filing, and Bitcoin is not in the list. They list coins like SOL and DASH. I’d paste the whole list but my phone won’t let me copy from a PDF.
The SEC and Supreme Court say 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".
other very popular industries could be selling securities, if you actually apply the test. Tell me the flaw in the following, and if there is no flaw, why did the SEC never go after them to make an example:
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?
> 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.
That is not a common enterprise. Where is the role of the "investor" (purchaser of the cards) in this enterprise?
To make the claim that it’s not a common enterprise, you’d have to actually define the term “common 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).
So it seems to me very clearly that the Yu Gi Oh franchise and people having cards in mint condition with a view to resell tnem have "horizontal commonality" or "vertical commonality” with its show which is promoting them.
The buyers are depending on the efforts of others (the show producers and promoters) to make their cards worth more.
Terms in law need to have a commonly accepted definition in order for anyone to decide court cases. Sometimes case law has an effect to chnage the definition.
What is your point? That definitions are irrelevant, and anyone can claim any combination of words ?
That, and I am not a lawyer, apparently it is pretty clear what a "common enterprise" is in the context we discuss here. Challenging that definition just because you don't like it might win internet arguments. Wether or not it works in court this time, believe it or not that defence was already tried, will be seen. I guess it won't end too well for crypto so.
You’re 100% wrong on this one. No one is “challenging the definition”, merely challenging a fallacious statement written on HN which probably got the definition wrong, and step 1 is to post the definition so the statement can be debunked.
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
If you are so convinced, you should find a way to test your theory around Yu Gi Oh in court. Regarding crypto exchanges, we will get our answers soon enough. The majority of people, crypto still is not mainstream, is better served sticking with the existing rules and regulations. And definitions, how do I hate this J. Peterson / Ben Shapiro debate technic of never coming to the point and dragging everything down to pseudo-intelectuall pedantry.
I argued with Ben Shapiro about his "Jews in Name Only" remarks, for instance. One can always hide behind vague phrases like that – what Wikipedia calls "weasel words" – and keep changing them.
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.
That’s the same argument that makers of utility tokens made. As long as the items are useful, they’re not securities.
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!
This is a non-statement. What does that even mean?
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.
Ethereum is used to pay for transactions on its network. It is called “gas”.
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?
No, ETH is used to pay for transactions, the vast majority of which aren't "about Ethereum", but rather it is a general-purpose virtual machine that executes instructions in smart contracts, which can be for any general purpose, such as contests, or voting, or securing some assets, etc. So ETH has a lot of utility and is decentralized. That it's not a security has been a majority consensus of the SEC until Gary Gensler took over, and many commissioners including Hinman publicly said it: https://www.sec.gov/news/speech/speech-hinman-061418
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:
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:
