In a significant development, an association of state securities regulators has filed an amicus brief in support of the U.S. Securities and Exchange Commission’s (SEC) ongoing case against Coinbase (NASDAQ: COIN). The regulators accuse Coinbase of attempting to manipulate the established legal framework to evade regulatory obligations, aligning itself with other participants in the nation’s securities markets.
An amicus curiae brief is a submission in a legal case by a non-party with a vested interest (amicus curiae translates to “friend of the court” in Latin). These briefs have become a common occurrence in regulatory cases against digital asset companies, with industry participants often rallying behind companies facing SEC scrutiny, knowing that they may also be targeted in the future.
What sets this case apart is the source of the brief; it was filed by the North American Securities Administrators Association (NASAA), representing securities regulators from all 50 states, as well as regulators in D.C., Puerto Rico, the U.S. Virgin Islands, and Guam. They argue that contrary to Coinbase’s claims and those of other digital asset companies in the SEC’s crosshairs, the SEC’s position – that Coinbase’s staking program and at least thirteen of its listed digital assets constitute securities – is neither novel nor extraordinary under U.S. securities laws.
They reference the Howey Test, a seminal case defining the criteria for determining if an offering qualifies as an investment contract and, therefore, a security. The NASAA points out that this test is designed to be adaptable to encompass technological and other innovations in the securities markets, including those involving blockchain-based securities.
Addressing a common complaint from the digital asset industry that robust enforcement could harm the U.S. economy, the NASAA contends that the industry’s significance is relatively limited within the broader U.S. economy. They also point to recent legal developments, including a decision in SEC v. Ripple, which rejected the notion that assets sold on secondary markets couldn’t be securities.
The NASAA disputes Coinbase’s claim that the SEC has been inconsistent regarding the legality of its staking program and assets, citing a 2017 SEC report that found digital assets offered by ‘The DAO’ to be securities. They also highlight that the SEC has initiated over 100 enforcement cases in the digital asset industry, with 75 of them occurring before 2021, thereby negating Coinbase’s argument that it was unaware of potential legal issues.
This amicus curiae brief from the NASAA is significant as it showcases a united front of state securities regulators supporting the SEC’s action against Coinbase and asserting that the SEC’s enforcement aligns with established securities laws, recommending the dismissal of Coinbase’s defense.
The SEC’s enforcement of securities laws within the digital asset industry has made it unpopular among companies profiting from listing unregistered securities on digital asset platforms. This has led to several amicus curiae briefs against the SEC, often rehashing outdated claims. However, a united front of all state securities regulators in the country is a potent statement of support for the SEC’s actions.
