In a recent post, crypto lawyer James Murphy expressed his belief that the amicus brief filed by six law scholars in support of Coinbase is “devastating” for the U.S. Securities and Exchange Commission (SEC). This legal document, filed by experts in securities law and related fields, challenges the SEC’s “investment contract” theory and provides a compelling argument against the classification of tokens trading on Coinbase as securities.
The amicus brief filed by the group of law professors and scholars raises important points that undermine the SEC’s position. It begins by tracing the historical development of the term “investment contract” and its interpretation before and after the passage of the federal Securities Act in 1933. The brief convincingly argues that investment contracts, as defined by state courts, involve a contractual arrangement granting investors a share of income, profits, or assets.
According to the scholars, a “common thread” in defining investment contracts emerged after the landmark Howey decision. This thread asserts that investors must receive an ongoing contractual interest in the enterprise’s income, profits, or assets. They emphasize that every investment contract identified by the Supreme Court includes a contractual undertaking to grant a surviving stake in the enterprise. This contractual undertaking, they argue, has always been the “key ingredient” that distinguishes investment contracts from other arrangements since the inception of the term.
James Murphy believes that the amicus brief delivered the decisive coup de grâce to the SEC’s argument that crypto tokens traded on secondary markets are investment contracts. Its careful analysis and reliance on historical case laws dismantle the SEC’s claim. By highlighting the absence of ongoing contractual interests and surviving stakes in the tokens traded on Coinbase, the scholars undermine the basis for considering them as securities.
If the court accepts the arguments put forward in the amicus brief, it would have significant implications for Coinbase and the wider crypto industry. The SEC’s attempt to regulate tokens trading on secondary markets as securities would be called into question. This could provide more clarity and certainty for crypto exchanges and market participants, enabling them to operate without the burden of stringent securities regulations.
The filing of this amicus brief represents a turning point in the legal landscape surrounding cryptocurrencies and their classification. It demonstrates the growing recognition from legal experts that a one-size-fits-all approach is inadequate for addressing the complexities of this emerging technology. As regulators and lawmakers grapple with the challenges posed by cryptocurrencies, the insights provided by knowledgeable scholars and legal professionals become invaluable.
The Road Ahead
While the amicus brief may be a significant development, the ultimate outcome of the case is yet to be determined. It remains to be seen how the court will weigh the arguments presented by both the SEC and the scholars. Nevertheless, this filing showcases the evolving nature of the legal discourse surrounding cryptocurrencies and highlights the need for continued engagement between legal experts, regulators, and industry stakeholders.
The amicus brief filed by these law professors and scholars poses a severe challenge to the SEC’s argument that tokens trading on Coinbase are securities. By providing a comprehensive historical analysis and leveraging relevant case laws, they effectively dismantle the SEC’s investment contract theory. If accepted by the court, this brief could have far-reaching implications for the crypto industry and provide much-needed clarity for market participants. Regardless of the outcome, it is clear that the legal landscape surrounding cryptocurrencies is evolving, with experts and scholars playing a crucial role in shaping the discourse.
