A consortium of six scholars specializing in securities law has submitted an amicus brief to endorse Coinbase (NASDAQ: COIN), the prominent US-based cryptocurrency exchange, in what has become a contentious legal matter. This move has garnered attention as the report characterizes the amicus brief as “devastating,” suggesting a significant impact. However, a counter-narrative emerges as observers assert that the amicus brief is fundamentally flawed, both in factual interpretation, legal analysis, and ethical consideration.
The core contention within the amicus brief revolves around the assertion that, as per securities law criteria, an ‘investment contract’ necessitates an anticipation of income, profits, or assets from a business venture. This legal perspective forms the basis for the argument that crypto assets lacking these contractual rights cannot be classified as securities. The specifics of the absent rights are identified as the non-participation in dividend distribution by token holders and the absence of a liquidation right during the company’s insolvency.
Critics have voiced skepticism about the first point, arguing that such an interpretation would excessively narrow the definition of securities, restricting it only to stocks that provide dividends. This, they assert, contradicts prevailing notions within the contemporary stock market.
The second facet of the amicus brief’s argument garners greater intrigue. It asserts that since ‘investment contracts’ inherently encompass an agreement to possess a continuing stake in the enterprise, the tokens traded on Coinbase fall short of qualifying as securities due to their lack of this contractual stake. This stance has been labeled both inventive and skewed.
Using the example of XRP, critics assert that many investors believed they were acquiring a vested interest in the fortunes of Ripple, a perception stemming from the close correlation between XRP’s value and Ripple’s success. While retail investors didn’t expect formal equity, the amicus brief emphasizes the association between token price and the enterprise’s future as crucial. This is where the crux of the disagreement lies.
The authors of the amicus brief posit that crypto tokens are peddled with a deceptive veneer, presenting themselves as speculative assets tethered to the issuing company’s future without explicit contractual obligations. This contention is met with criticism, suggesting that such a stance seemingly rewards successful deception.
Critics point out that the amicus brief contradicts the very notion of investor protection that securities law seeks to uphold. The argument’s complexity expands to encompass the intrinsic nature of tokens, control or centralization, and the notion of a ‘common enterprise’ within the framework of the Howey test.
Additionally, critics assert that the amicus brief diverges from the spirit of securities law, which aims to safeguard investors by upholding trust in financial markets. The argument that speculative nature disqualifies an asset from being considered a security is met with skepticism.
It’s important to note that academic discourse around blockchain and cryptocurrency often features a grasp of legal nuances but may overlook technological intricacies. Nevertheless, this amicus brief is subject to widespread criticism not only for its stance but also its comprehension of the technology.
Ultimately, the debate pivots around the notion that while adept legal minds can advocate for divergent perspectives, the amicus brief in question may not be a reflection of unbiased analysis. The Securities and Exchange Commission (SEC) and the court are tasked with deliberating upon this multi-faceted issue, drawing attention to the intricate interplay of law, technology, and investor protection.
