Concerns that the definition of securities is too broad
On the 17th, a judge in the US District Court for the Southern District of New York questioned the SEC in a case involving the US Securities and Exchange Commission (SEC) and Coinbase. He asks about the security nature of crypto asset (virtual currency) tokens.
The SEC sued Coinbase last June for offering unregistered securities.
List the names of Solana (SOL), ADA (ADA), Polygon (MATIC), Sand (SAND), Chillies (CHZ), NEAR Protocol (NEAR), DASH (DASH) and other tokens and claim that they are securities. It’s cool.
connection: SEC lawsuit between Binance and Coinbase | Summary of the current state of virtual currency regulation and industry reaction
Judge Catherine Polka Faila asked the SEC whether issuers of these tokens were violating securities laws.
A lawyer for the SEC responded, “Not exactly,” and “These tokens named in the complaint are computer code.” This raises the possibility that tokens themselves may not be considered securities.
Judge Failla also expressed concern that the SEC’s discussion of the definition of a security is too broad.
The SEC also considers staking services to be an offering of securities. In response, Judge Failla opined that staking appeared to be the least similar service to traditional investment vehicles that the SEC accused of violating securities laws. .
So far, Judge Failla’s comments have been favorable to Coinbase. The hearing was held after Coinbase asked the court to dismiss the SEC’s lawsuit.
As for future proceedings, it is likely that the judge will deny Coinbase’s motion to end the lawsuit. If that happens, the next step is discovery. Further, at the conclusion of discovery, both the SEC and Coinbase may file motions for summary judgment.
If the judge is not satisfied with this, the case will be referred to a jury, which could happen after 2025.
Furthermore, in August 2023, Judge Failla dismissed a class action lawsuit against the decentralized exchange Uniswap. At this time, the issue was damage caused by fraudulent tokens in DeFi, but the company refused to expand the scope of securities laws to adjudicate this issue.
connection: U.S. district court dismisses class action lawsuit against decentralized cryptocurrency exchange Uniswap
Rep. Lummis and others request dismissal of lawsuit
Regarding the SEC v. Coinbase case, U.S. senators Cynthia Lummis and Kirsten Gillibrand filed a petition in August 2023 asking the court to dismiss the SEC’s lawsuit.
The idea is that virtual currencies are an issue of national importance, and Congress should first provide direction. Lummis and his colleagues are working to advance the Responsible Financial Innovation Act in Congress to regulate cryptocurrencies.
connection: U.S. Congress rejects virtual currency-related provisions in National Defense Authorization Act
Lawyers for the SEC argue against Lummis and others’ request to dismiss. The Howie test, on which the SEC defines securities, is “enacted by the will of Congress,” and a single lawmaker cannot override that will.”
What is the Howie test?
The Howie test is a test used in the United States to determine whether a particular transaction falls under one of the definitions of a securities transaction called an “investment contract.” The court established this as a criterion for determining an “investment contract” in the 1946 Howey litigation case.
▶️Virtual currency glossary
connection: US SEC cites Terraform Labs precedent in lawsuit against Coinbase and Binance
