Coinbase, a leading American cryptocurrency exchange platform, has garnered significant support in its legal tussle with the U.S. Securities and Exchange Commission (SEC). Notably, Republican Senator Cynthia Lummis and a group of six esteemed legal scholars have stepped forward, filing amicus briefs in the U.S. District Court for the Southern District of New York, advocating for Coinbase's stance.
The SEC's lawsuit, initiated in June, alleges that Coinbase engaged in the sale of unregistered securities. This legal action has been a point of contention in the rapidly evolving world of digital assets, with many stakeholders closely monitoring the proceedings.
A collective of legal scholars, including Stephen Bainbridge of the University of California, Los Angeles; Tamar Frankel of Boston University School of Law; Sean Griffith of Fordham University School of Law; Lawrence Hamermesh of Widener University, Delaware Law School; Matthew Henderson of the University of Chicago Law School; and Jonathan Macey from Yale Law School, submitted an amicus brief last week. Their submission delves into the historical interpretation of "investment contract" before and after the enactment of the Federal Securities Act of 1933. The scholars emphasize that by 1933, state courts had reached a consensus on the term's definition, associating it with a contractual arrangement that grants an investor a share of the seller's future income, profits, or assets.
Furthermore, the scholars highlighted the Howey decision of 1946, pointing out that the consistent interpretation of investment contracts necessitates a promise to the investor of a continued contractual interest in the enterprise's income, profits, or assets.
On the same day, Senator Cynthia Lummis of Wyoming also presented an amicus brief in support of Coinbase. In her submission, she urged the court to dismiss the SEC's lawsuit against the exchange. Senator Lummis criticized the SEC's approach, stating that its treatment of almost all crypto assets as securities is not in line with international standards. She argued that the SEC is ill-equipped to develop a comprehensive regulatory framework for crypto assets, especially through a judicial enforcement action. The senator's brief further stressed the need for Congress to establish an appropriate regulatory system.
James Murphy of Vanderbilt Law, a prominent figure in the realm of digital assets and the metaverse, weighed in on the amicus briefs. He lauded the legal scholars' brief, stating that it effectively counters the SEC's claim that crypto tokens traded on secondary markets qualify as investment contracts. Murphy also praised Senator Lummis's brief, highlighting her innovative take on the "regulation-by-enforcement" term and her assertion that the SEC cannot legislate through enforcement.
The SEC's lawsuit against Coinbase has been a focal point in the crypto community, with many viewing it as a litmus test for the future regulation of digital assets in the U.S. As the case unfolds, the crypto industry and its stakeholders will be keenly observing the court's decisions and their potential ramifications.
