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> The SEC's position is simple: the same rules apply to crypto as to other financial products. If you only reference the SEC's own press releases, you are goin

> The SEC's position is simple: the same rules apply to crypto as to other financial products. If you only reference the SEC's own press releases, you are going to miss the nuance here. The SEC on its own doesn't get to decide when and how existing securities law applies to cryptocurrencies. Absent a settlement, any action undertaken by the SEC must be decided by a federal court. Importantly, the SEC has been losing in court. For instance, the SEC, which had been blocking a spot Bitcoin ETF, was told in unequivocal terms by the DC Court of Appeals that its reasons for not allowing the ETF to issue were completely unsound. More pertinent to the question of enforcement: another federal court recently found that exchange-traded Ripple XRP tokens are not securities, with the implication that the SEC does not have jurisdiction to regulate the trading of Ripple XRP tokens on exchanges. If you extrapolate this finding to other cryptocurrencies, the SEC cases against Kraken and Coinbase are on shaky ground. The fact that the SEC can list so many victories on its website is more a function of how costly it is to fight the SEC in court, rather than being a function of whether the SEC is right in all of its assertions. There have been too many cases of fraud in the crypto industry, and it's good that the SEC has pursued enforcement against them. There are cases, however, where SEC has gone too far, and continues to go too far—especially in light of the fact that the SEC refuses to set forth clear criteria as to which crypto tokens it considers securities, and which crypto tokens it does not consider securities. Now that the SEC is going after larger players, we are starting so see more cases actually go to court. If the trend continues, one or more of these cases will end up before the Supreme Court, and we will find out what the actual law is in the United States with regards to which crypto tokens are securities and which ones are not, and whether the SEC does in fact have any jurisdiction at all over the crypto exchanges. You should not be surprised if after everything is said and done—after we have a Supreme Court opinion—crypto is in fact a special case under US securities law, at least with regards to some tokens. You should also not be surprised if some of the cases in the list that you reference lose their legal support once the law is clarified by the Supreme Court. In hindsight, some of these SEC enforcement actions may be seen as unfair and unjust.

davedx 3y ago
> the SEC refuses to set forth clear criteria as to which crypto tokens it considers securities, and which crypto tokens it does not consider securities. Here you go: "A security is a fungible, negotiable financial instrument that represents some type of financial value" It's not the responsible of enforcement agencies to educate people as to what crimes are. This is like pleading ignorance.
- legutierr 3y ago
  > Here you go: "A security is a fungible, negotiable financial instrument that represents some type of financial value" Is that your own definition? Luckily, the SEC is constrained by laws passed by Congress and by Supreme Court precedent—both of which run counter to your definition—and doesn't have the same flexibility that ordinary citizens do when articulating policy.
  - NovemberWhiskey 3y ago
    OK: (1) The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
    - legutierr 3y ago
      OK, so how, under this definition, does Ethereum qualify as a security? XRP?
      - NovemberWhiskey 3y ago
        Based on the definition of an investment contract by the Howey test in cases of secondary sale?
        3y ago
carstenhag 3y ago
Imo completely valid for the SEC to file lawsuits for a broad spectrum. All of this crypto stuff is a point where both "knowns" and "unknowns" regarding law interpretations/rules meet. So essentially them losing sometimes makes it clearer what is allowed, whether the SEC is actually responsible or not.
vinniepukh 3y ago
Does it have to go to SCOTUS for the powerful precedent to be set? I would imagine the SEC will be keen to avoid a country-wide precedent should they lose in district courts. Excellent comment btw. It’s the 201-level analysis vs the 101 that we see in the media of SEC shutting down crypto etc
FireBeyond 3y ago
> the SEC refuses to set forth clear criteria as to which crypto tokens it considers securities, and which crypto tokens it does not consider securities This is a PR soundbite. Coinbase has milked this one quite extensively. "Woe is us, we're trying to do the right thing but the SEC won't tell us what to do!" It's not actually accurate. And when the people responsible for writing become Coinbase's lawyers, not their marketing team, and the rubber hits the road in court, Coinbase says no such thing. This is the actual crux of their complaint, in their own words: > for many tokens, registering is not possible due to effort involved, or not economically viable. Coinbase doesn't like the cost of having to register securities for the shitcoin du jour - there's no money to be made. But the SEC isn't obligated to make a profitable business model for Coinbase. But it sounds far better to get the crypto club and libertarians up in arms about unhelpful government organizations.
- everfree 3y ago
  Where has the SEC stated whether they consider the second largest cryptocurrency, Ethereum, to be a security or not (and thus under their jurisdiction or not)? If "missing criteria" is nothing but a PR soundbite, perhaps I missed where the SEC shared that criteria.
  - FireBeyond 3y ago
    The last I recall is that the SEC considered all crypto to be a security. And Coinbase is absolutely aware of it. In fact, in the previous sentences to my quote, in their court filing, they are aware, but disagree: > We disagree that the majority of digital assets are securities. And you seem to miss my point. Not once in Coinbase's lawsuit did they actually say "We'd love to comply, we just don't know how to". In fact what they did say was that they knew how to comply, "but the cost and effort makes it not profitable for us". But because of their PR everyone is latching on to this spin of "we'd love to follow regulation, but we don't know how and no-one will tell us!" So why didn't they say that in court?
    - everfree 3y ago
throw3823423 3y ago
Let's be realistic here: The US supreme court always tells us what the law is, every time, regardless of how clear the law's writing is, and how the court had rules in the past. The same can happen in lower courts, as federal circuits come back with head-scratching rulings whenever it suits the judge's aesthetic preferences. Judge shopping is quite popular in expensive cases for good reasons. So we shouldn't be surprised when anything changes, ever, given how much activism we are seeing in courts today. So the question is, how much do the people that actually decide what a law means really like cryptocurrencies? I suspect the only good chance most of those companies have is rely on the court's dislike for government agencies, regardless of what laws say. But as far as I am aware, the good friends of the court tend to be very involved in old banking, and thus they aren't fond of crypto companies either. So maybe those companies should start lobbying Harlan Crow and his circle of friends.
kemitchell 3y ago
The SEC doesn't set the legal standard for what is or is not a security. The courts do, based on the statutes passed by Congress. Here's a guide they published: https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets https://www.sec.gov/corpfin/framework-investment-contract-an... It summarizes the law. The SEC obviously will not be publishing a release saying it won't enforce the law according to criteria written to suit cryptocurrency promoters. Its key public mission is investor protection.
- legutierr 3y ago
  The SEC's public mission also includes maintaining fair, orderly, and efficient markets, and facilitating capital formation. Both would be well served by an explanation as to how the SEC distinguishes between security tokens and non-security tokens.
  - kemitchell 3y ago
    Did you read the guide I linked to above? From its first paragraph: > In this guidance, we provide a framework for analyzing whether a digital asset has the characteristics of one particular type of security – an "investment contract."[4] Both the Commission and the federal courts frequently use the "investment contract" analysis to determine whether unique or novel instruments or arrangements, such as digital assets, are securities subject to the federal securities laws.
    - legutierr 3y ago
      I am quite aware of what the document says. It's just that it hasn't been updated since April 2019, and today more clarity is needed. https://news.ycombinator.com/item?id=38414770 https://news.ycombinator.com/item?id=38414770
Animats 3y ago
> another federal court recently found that exchange-traded Ripple XRP tokens are not securities You mean this case?[1] No, that's not what the court decided. The setup with Ripple was that institutional investors bought tokens directly from Ripple, and then resold them on an open market. The court ruled that resale of the tokens on the open market did not violate the Howey test because Ripple was not a party to that transaction. But the initial sale to institutional investors is still being litigated. Whether the resale by the institutional investors is a regulated event hasn't been litigated yet. So this is a token-laundering scheme that may have worked. Or not; the remaining parts of the case go to trial on April 23, 2024. [1] https://www.nysd.uscourts.gov/sites/default/files/2023-07/SEC%20vs%20Ripple%207-13-23.pdf https://www.nysd.uscourts.gov/sites/default/files/2023-07/SE...
- legutierr 3y ago
  Did you read the document you linked to? "...the Court concludes that Ripple’s Programmatic Sales of XRP did not constitute the offer and sale of investment contracts" It is not only third party sales that were deemed not to be investment contracts—it was all programmatic sales. As I said, the federal court found that exchange-traded Ripple XRP tokens are not securities. Also, you should know that the SEC has dropped the remaining charges that were to be tried in April. The next step in the litigation is an appeal of the summary judgement.

davedx 3y ago

> the SEC refuses to set forth clear criteria as to which crypto tokens it considers securities, and which crypto tokens it does not consider securities. Here you go: "A security is a fungible, negotiable financial instrument that represents some type of financial value" It's not the responsible of enforcement agencies to educate people as to what crimes are. This is like pleading ignorance.

legutierr 3y ago
> Here you go: "A security is a fungible, negotiable financial instrument that represents some type of financial value" Is that your own definition? Luckily, the SEC is constrained by laws passed by Congress and by Supreme Court precedent—both of which run counter to your definition—and doesn't have the same flexibility that ordinary citizens do when articulating policy.
- NovemberWhiskey 3y ago
  OK: (1) The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
  - legutierr 3y ago
    OK, so how, under this definition, does Ethereum qualify as a security? XRP?
    - NovemberWhiskey 3y ago
      Based on the definition of an investment contract by the Howey test in cases of secondary sale?
      - 3y ago

carstenhag 3y ago

Imo completely valid for the SEC to file lawsuits for a broad spectrum. All of this crypto stuff is a point where both "knowns" and "unknowns" regarding law interpretations/rules meet. So essentially them losing sometimes makes it clearer what is allowed, whether the SEC is actually responsible or not.

vinniepukh 3y ago

Does it have to go to SCOTUS for the powerful precedent to be set? I would imagine the SEC will be keen to avoid a country-wide precedent should they lose in district courts. Excellent comment btw. It’s the 201-level analysis vs the 101 that we see in the media of SEC shutting down crypto etc

FireBeyond 3y ago

> the SEC refuses to set forth clear criteria as to which crypto tokens it considers securities, and which crypto tokens it does not consider securities This is a PR soundbite. Coinbase has milked this one quite extensively. "Woe is us, we're trying to do the right thing but the SEC won't tell us what to do!" It's not actually accurate. And when the people responsible for writing become Coinbase's lawyers, not their marketing team, and the rubber hits the road in court, Coinbase says no such thing. This is the actual crux of their complaint, in their own words: > for many tokens, registering is not possible due to effort involved, or not economically viable. Coinbase doesn't like the cost of having to register securities for the shitcoin du jour - there's no money to be made. But the SEC isn't obligated to make a profitable business model for Coinbase. But it sounds far better to get the crypto club and libertarians up in arms about unhelpful government organizations.

everfree 3y ago
Where has the SEC stated whether they consider the second largest cryptocurrency, Ethereum, to be a security or not (and thus under their jurisdiction or not)? If "missing criteria" is nothing but a PR soundbite, perhaps I missed where the SEC shared that criteria.
- FireBeyond 3y ago
  The last I recall is that the SEC considered all crypto to be a security. And Coinbase is absolutely aware of it. In fact, in the previous sentences to my quote, in their court filing, they are aware, but disagree: > We disagree that the majority of digital assets are securities. And you seem to miss my point. Not once in Coinbase's lawsuit did they actually say "We'd love to comply, we just don't know how to". In fact what they did say was that they knew how to comply, "but the cost and effort makes it not profitable for us". But because of their PR everyone is latching on to this spin of "we'd love to follow regulation, but we don't know how and no-one will tell us!" So why didn't they say that in court?
  - everfree 3y ago

throw3823423 3y ago

Let's be realistic here: The US supreme court always tells us what the law is, every time, regardless of how clear the law's writing is, and how the court had rules in the past. The same can happen in lower courts, as federal circuits come back with head-scratching rulings whenever it suits the judge's aesthetic preferences. Judge shopping is quite popular in expensive cases for good reasons. So we shouldn't be surprised when anything changes, ever, given how much activism we are seeing in courts today. So the question is, how much do the people that actually decide what a law means really like cryptocurrencies? I suspect the only good chance most of those companies have is rely on the court's dislike for government agencies, regardless of what laws say. But as far as I am aware, the good friends of the court tend to be very involved in old banking, and thus they aren't fond of crypto companies either. So maybe those companies should start lobbying Harlan Crow and his circle of friends.

kemitchell 3y ago

The SEC doesn't set the legal standard for what is or is not a security. The courts do, based on the statutes passed by Congress. Here's a guide they published: https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets https://www.sec.gov/corpfin/framework-investment-contract-an... It summarizes the law. The SEC obviously will not be publishing a release saying it won't enforce the law according to criteria written to suit cryptocurrency promoters. Its key public mission is investor protection.

legutierr 3y ago
The SEC's public mission also includes maintaining fair, orderly, and efficient markets, and facilitating capital formation. Both would be well served by an explanation as to how the SEC distinguishes between security tokens and non-security tokens.
- kemitchell 3y ago
  Did you read the guide I linked to above? From its first paragraph: > In this guidance, we provide a framework for analyzing whether a digital asset has the characteristics of one particular type of security – an "investment contract."[4] Both the Commission and the federal courts frequently use the "investment contract" analysis to determine whether unique or novel instruments or arrangements, such as digital assets, are securities subject to the federal securities laws.
  - legutierr 3y ago
    I am quite aware of what the document says. It's just that it hasn't been updated since April 2019, and today more clarity is needed. https://news.ycombinator.com/item?id=38414770 https://news.ycombinator.com/item?id=38414770

Animats 3y ago

> another federal court recently found that exchange-traded Ripple XRP tokens are not securities You mean this case?[1] No, that's not what the court decided. The setup with Ripple was that institutional investors bought tokens directly from Ripple, and then resold them on an open market. The court ruled that resale of the tokens on the open market did not violate the Howey test because Ripple was not a party to that transaction. But the initial sale to institutional investors is still being litigated. Whether the resale by the institutional investors is a regulated event hasn't been litigated yet. So this is a token-laundering scheme that may have worked. Or not; the remaining parts of the case go to trial on April 23, 2024. [1] https://www.nysd.uscourts.gov/sites/default/files/2023-07/SEC%20vs%20Ripple%207-13-23.pdf https://www.nysd.uscourts.gov/sites/default/files/2023-07/SE...

legutierr 3y ago
Did you read the document you linked to? "...the Court concludes that Ripple’s Programmatic Sales of XRP did not constitute the offer and sale of investment contracts" It is not only third party sales that were deemed not to be investment contracts—it was all programmatic sales. As I said, the federal court found that exchange-traded Ripple XRP tokens are not securities. Also, you should know that the SEC has dropped the remaining charges that were to be tried in April. The next step in the litigation is an appeal of the summary judgement.