Securities regulators oppose special treatment of crypto in Coinbase case

Digital assets should not be seen as “somehow special,” nor should action against Coinbase be seen as “novel or extraordinary,” argues an association of North American securities regulators.

In an Oct. 10 filing in a New York District Court supporting the United States Securities and Exchange Commission, the North American Securities Administrators Association (NASAA) argued that digital assets need not be given any special treatment when it comes to applying securities laws.

TradFi grey hairs file Amicus Curiae on behalf *drum roll* the SEC, in SEC vs. Coinbasehttps://t.co/ukeHcfcX8B

NASAA landing page screenshot and story attached. PROTECT. pic.twitter.com/DczmmRVlm5

— Mikko Ohtamaa (@moo9000) October 10, 2023

In June, the SEC sued Coinbase accusing the publicly traded crypto exchange of violating federal securities laws. Coinbase fired back arguing that digital assets and services it provided did not qualify as securities and that the agency was overreaching.

However, NASAA general counsel Vincente Martinez argued the SEC’s position is neither “novel or extraordinary.”

“The SEC’s theory in this case is consistent with the agency’s longstanding public position […] It is also well within the bounds of established law.”

The agency argued that it’s unnecessary for the SEC to get explicit Congressional authorization before applying established law to digital assets.

Howey test sufficient

One of the cornerstones of the lawsuit is expected to come from the judge’s interpretation of the Howey test — used to determine what qualifies as an investment contract. Coinbase has argued digital assets don’t satisfy all prongs of the test.

Martinez argued the Howey test was designed to be flexible enough to encompass all manner of technological advancements in the securities markets, including securities sold and traded on blockchains — similar to arguments previously made by the SEC.

“The Court should reject Coinbase’s attempt to narrow and misapply the established legal framework in order to avoid being subject to the same regulatory obligations as all other participants in the Nation’s securities markets,” said Martinez, adding:

“The Court should decline to treat digital assets as somehow special.”

Crypto impact overstated

Martinez also took a swipe at Coinbase’s argument invoking the “major questions doctrine” which claimed executive agencies like the SEC need Congressional approval when it comes to issues of major…