The North American Securities Administrators Association (NASAA) has criticized Coinbase’s arguments in its case against the SEC.
NASAA in their argument, said that digital assets should not be viewed as “somehow special,” nor should action against Coinbase be seen as “novel or extraordinary”.
In a new court filing on Oct. 10, the United States District Court for the Southern District of New York supporting the U.S. Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA) argued that securities laws should apply to digital assets just like any other financial product.
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, alleging that the crypto exchange had violated federal securities laws. Coinbase responded by arguing that its products are not securities and that the SEC is misapplying the law.
In response to Coinbase’s argument, Vincente Martinez, the general counsel of NASAA, argued that the SEC’s position is neither “novel nor 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 the SEC has the authority to apply established law to digital assets without additional congressional authorization.
A significant issue in the lawsuit depends on how the judge interprets the Howey test, a legal standard used to determine whether something qualifies as an investment contract. Coinbase has argued that digital assets don’t meet all the criteria of the test, but the SEC has a different interpretation.
In his argument, Martinez mentioned that the Howey test was created to be flexible enough to apply to new technologies in the securities markets, including those sold and traded on blockchains, similar to arguments previously made by the SEC.
Martinez further stated that the court should reject Coinbase’s attempt to evade regulatory oversight by distorting the legal framework that applies to securities markets.
“The Court should decline to treat digital assets as somehow special.”
Martinez also criticized Coinbase’s argument about the ‘major questions doctrine,’ which stated that the SEC needs congressional approval for actions involving major political or economic issues. Martinez argued that the doctrine does not apply in this case.
Martinez further argued Coinbase’s claim that the ‘digital asset industry’ is a significant part of the U.S. economy, stating that this characterization is dubious and lacks support.
However, Martinez stated that digital assets cannot be considered a significant part of the U.S. economy because the majority of them lack any practical use or wide adoption, other than speculative trading.
“With very few exceptions, digital assets are not widely accepted to pay for goods or services, nor can they be used to satisfy obligations to the government such as fees or taxes,” he wrote.
“As a class of assets, digital assets are not economically useful,” he said, adding:
“Coinbase overstates both the size and significance of this ‘industry,’ particularly the portion that securities regulators oversee.”
NASAA supported the SEC’s position and urged the judge to deny Coinbase’s motion to dismiss the SEC lawsuit.
Under the leadership of NASAA President Claire McHenry, NASAA members are advocating for investor protection in an era of technological innovation. Learn more about our legislative and regulatory priorities in this changing landscape: https://t.co/yNPvjGrUhC pic.twitter.com/4Gs5XU0NDt
— NASAA (@NASAA) October 10, 2023
NASAA is composed of 68 members, including securities regulators from all 50 U.S. states, as well as regulators from Canada, Mexico, and several U.S. territories.
Martinez added saying “NASAA and its members have a substantial interest in this case”.