We’ve been saying it for years, but now the Securities and Exchange Commission finally admits what we already knew: “Crypto asset security” The term was made up and had no legal foundation. After misleading courts and the general public for years, the agency quietly abandoning the term is an important retreat in the regulatory by enforcement campaign it has waged against the industry of digital assets.
The SEC, instead of providing helpful or proactive guidance over the past few years, has sued industry participants as a way to destroy crypto. It’s not going very well. The recent dismantling of the myths behind the SEC approach has removed any doubt. “crypto asset security” It’s time to put this issue behind us.
The SEC has filed several enforcement actions in the past year against major exchanges. It is now fighting Binance, Coinbase, and Kraken at different courts. The SEC amended its Binance complaint two weeks ago. In a footnote at page 24, the SEC made a shocking apology.
“As this Court noted and as the SEC reiterates, with its use of the term ‘crypto asset securities,’ the SEC is not referring to the crypto asset itself as the security; rather, as the SEC has consistently maintained since [Telegram], the term is a shorthand…. Nevertheless, to avoid any confusion, the [amended complaint] no longer uses the shorthand term, and the SEC regrets any confusion it may have invited in this regard.”
In history, it is very rare for a single note to confuse so many experts at the same time. Coinbase Chief legal officer Paul Grewal described the incident as “shameless.” Katherine Minarik is the CLO of Uniswap Labs. “no government agency should work this way.” Ripple labs CLO Stuart Alderoty said the SEC. “admit it has become a twisted pretzel of contradictions.”
Why do you react with such vigor? Three reasons are possible.
Firstly, it is evident that the footnotes are false. The footnote is far from being accurate “consistently maintained” It is a “is not referring to the crypto asset itself as the security,” The SEC is relentless in spreading the myth that tokens are securities.
In its 2017 settlement with Munchee it declared this view. “digital assets may be securities” And that “MUN tokens were securities…because they were investment contracts.” In the past, it has reiterated its position. In its framework for 2018 ICOs, the SEC analyzed “whether a digital asset is offered or sold as an investment contract and, therefore, is a security.” The SEC claimed that Ripple Labs violated the 2020 SEC complaint. “XRP was an investment contract and therefore a security[.]” In its complaint 2023 against Coinbase the SEC accused Coinbase “available for trading crypto assets that are investment contracts under the Howey test[.]”
It seems that the SEC is not being sincere when it mentions Telegram as a case in its footnote. SEC uses the Telegram Case to demonstrate that they have a long history. “consistently maintaining” That tokens are not securities. But the citation itself doesn’t reference a statement by the SEC — it quotes the court holding that tokens are “little more than alphanumeric cryptographic sequence[.]” According to the SEC’s complaint filed against Telegram in 2019, it was not Telegram itself that had been hacked. “Grams are securities” You can also find out more about “Grams are investment contracts.”
It’s not even the first misrepresentation the SEC made to the court in this year. When the SEC misrepresented itself to the court, in order to receive the relief they were seeking, to defendants of Debt Box the SEC, the court took a rare step and imposed sanctions because it’s alleged that its liars. “pervasive misconduct…demonstrate[d] a pattern of organizational bad faith and broadly implicate[d] the Commission itself—not just isolated individuals.” An 80-page document using the word “bad faith” The court has stated 46 times that SEC conduct is unacceptable “constitute[d] a gross abuse of the power entrusted to it by Congress and substantially undermined the integrity of [the] proceedings and the judicial process.”
The footnote also shows a SEC that is in chaos. As a federal agency with extraordinary power to regulate the US economy, we expect — and administrative law requires — that the SEC will maintain consistent positions within and across its divisions. The left hand should know what the rights hand is up to.
On the same day, the Enforcement Division apologized halfheartedly in the Binance Case for the confusion caused by its use of the term “crypto asset securities,” The same division also used the term eight times when it settled with eToro. And the SEC’s X Account posted an Investor Alert from the Office of Investor Education and Advocacy, which uses the term five different times. The SEC is unable to decide on the language it will use to describe the law. This makes entrepreneurs and investors question the SEC’s interpretation.
The footnote shows that the SEC is aware of its incorrect view and has taken different positions to win enforcement cases. The argument that tokens themselves are securities is central to the SEC’s enforcement actions against centralized exchanges — the SEC hung its hat on that argument in the Binance case, claiming that tokens are “the embodiment of the investment contract” The securities laws apply to them as they are traded in the secondary market. It was the court that pointed out SEC’s inconsistent use of “secondary market” “crypto asset securities” This argument was rejected, as it is not valid. “is not enough, standing alone, to bring secondary sales” Specific tokens that fall under SEC jurisdiction
In its role as an impartial regulator, the SEC should not take different positions on different issues just because they want to win. Instead, the SEC should be presenting a consistent view of the law — assuming it has one. It is clear from this footnote that it doesn’t. The defendants can now assert the fair notice defense to SEC enforcement. “common intelligence” Can’t understand its meaning
SEC abandons the term abruptly “crypto asset securities” Although they might like to claim that it’s just semantics. It will be difficult for the SEC to prove that they have authority over digital assets secondary markets if tokens are not securities. The crux of the securities laws is a registration regime for securities — but if the tokens themselves aren’t securities, then it’s unclear what exactly should be registered in the first place.
The SEC has also backed away from using the term. “crypto asset securities.” In recent Congress hearings, members on both sides of the aisle — from Ritchie Torres to Tom Emmer — remarked on how the SEC made up the term despite having no basis in federal law, only to later retract it and apologize for its use. The myth has been dispelled. “crypto asset security” The SEC’s weakness will be exposed in the courts as well as Congress.
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