Digital assets should not be viewed as “somewhat special,” nor should the actions taken against Coinbase be viewed as “new or unusual,” says the Association of North American Securities Regulators.
On October 10th Deposit In the US District Court for the Southern District of New York supporting the US Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA) argued that digital assets do not need any special treatment when it comes to enforcing securities laws.
Gray-haired TradFi files Amicus Curiae on behalf of *drum* SEC, in SEC vs. Coinbase matchuphttps://t.co/ukeHcfcX8B
NASAA screenshot of landing page and story attached. Protect. pic.twitter.com/DczmmRVlm5
– Miko Utama (@moo9000) October 10, 2023
In June, the Securities and Exchange Commission filed a lawsuit against Coinbase, accusing the publicly traded cryptocurrency exchange of violating federal securities laws. Coinbase responded, arguing that the digital assets and services it offered did not qualify as securities and that the agency was overstepping its bounds.
However, NASA General Counsel Vincente Martinez said the SEC’s position is neither “new nor exceptional.”
“The SEC’s theory in this case is consistent with the agency’s longstanding general position […] It also falls within the limits of applicable law.”
The SEC does not have to obtain explicit authorization from Congress before applying applicable law to digital assets, the agency said.
Enough amateur testing
One of the cornerstones of the case is expected to come from the judge’s interpretation of the Howey test, which is used to determine what qualifies as an investment contract. Coinbase argued that digital assets do not meet all testing requirements.
Martinez argued that the Howey test is designed to be flexible enough to include all types of technological advances in securities markets, including securities sold and traded on the blockchain — similar to arguments the SEC has previously made.
“The court must reject Coinbase’s attempt to narrow and misapply the existing legal framework in order to avoid being subject to the same regulatory obligations as all other participants in the country’s securities markets,” Martinez said, adding:
“The court should refuse to treat digital assets as somehow special.”
The effect of encryption is exaggerated
Martinez also criticized Coinbase’s argument citing the “Big Questions Doctrine,” which claimed that executive agencies like the SEC need congressional approval when it comes to issues of major political or economic importance.
“Coinbase suspiciously categorizes the digital asset industry as a major part of the US economy,” Martinez said.
Related: The SEC is asking a judge to deny Coinbase’s motion to dismiss the lawsuit
However, Martinez said digital assets cannot reasonably be considered a significant component of the US economy as there is no practical economic use case or widespread adoption for the vast majority of digital assets other than speculation.
“With very few exceptions, digital assets are not widely accepted to pay for goods or services, and cannot be used to fulfill obligations to the government such as fees or taxes,” he wrote.
“As an asset class, digital assets are not economically beneficial,” he said, adding:
“Coinbase exaggerates the size and importance of this ‘industry,’ especially the part overseen by securities regulators.”
The NASAA report joined the SEC in asking a judge to reject Coinbase’s attempt to dismiss the SEC’s lawsuit.
Under the leadership of NASAA President Claire McHenry, NASAA members advocate for investor protection in an age of technological innovation. Learn more about our legislative and regulatory priorities in this changing landscape: https://t.co/yNPvjGrUhC pic.twitter.com/4Gs5XU0NDt
– NASA (@NASA) October 10, 2023
NASA has 68 members, including securities regulators from all 50 U.S. states, along with securities regulators in Canada, Mexico and several U.S. territories.
“NASA and its members have a keen interest in this issue,” Martinez added.
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