A consortium of esteemed U.S. law scholars is rallying support behind Coinbase in its ongoing legal dispute with the Securities and Exchange Commission (SEC). At the heart of the contention lies, none other than, the intricacies of definitions and interpretations. Alluding to a 1946 case, S.E.C. v. W.J. Howey Co, the legal experts argue that SEC’s understanding of “investment contract” may be rooted in a misinterpretation.
The famous “Howey Test” is often referenced by SEC chairman Gary Gensler. According to it, any financial asset can be termed as a security if it involves an investment of money, in a common enterprise, with an expected profit that is reliant on the work of others. The legal academics dispute the SEC’s understanding of the term. Their in-depth analysis of the term’s evolution under the “blue sky laws” provides intriguing food for thought.
Interestingly, they claim, the original use of the term “investment contract” under the Minnesota’s blue sky law of 1919 was to account for securities that were neither stocks nor bonds, but were dependent and gave a right to future profits. Subsequent legal scenarios in Minnesota supported this interpretation, tagging the explicit presence of “a contractual share of a seller’s later income, profits, or assets” as the hallmark of an investment contract. Notably, many of these cases were later cited by Howey.
Contradicting the SEC’s claim that over a dozen crypto assets listed on Coinbase’s platform are securities, the scholars provide a meticulously different perspective. They put forth an interesting conclusion, “An investment contract requires contractual undertakings to deliver future value reflecting the income, profits, or assets of a business,” they explained, urging the court to adhere to the established meaning of the term.
In summary, the legal dispute involving Coinbase and the SEC highlights the ongoing struggle to match emerging blockchain technology with often outdated and fluid regulatory frameworks. As new definitions and interpretations continue to emerge, the future survival and thriving of cryptocurrencies could dictate the re-evaluation of existing laws and contract interpretations. On one end, we should adhere to established legal definitions, on the other, the dynamic and innovative nature of the crypto market could be demanding a fresh perspective. The outcome of this dispute may set a precedent for how securities in the crypto world are regulated in the future.
Source: Cryptonews
