The North American Securities Administrators Association (NASAA) has thrown its weight behind the U.S. Securities and Exchange Commission (SEC) in their legal action against Coinbase. This support, detailed in an Oct. 10 court filing, underscores the importance of consistent interpretation of securities law within the cryptocurrency industry.
In their filing, NASAA made a crucial point: cryptocurrencies, in and of themselves, are not inherently fraudulent. However, the nascent sector has been a magnet for fraudsters who exploit investors' fear of missing out and their economic vulnerabilities. This statement laid the foundation for NASAA's argument in favor of the SEC.
According to NASAA, the SEC's claim that Coinbase violated securities laws aligns with the agency's long-standing stance on the industry. NASAA firmly stated that the lawsuit brought against Coinbase was neither "novel nor extraordinary." In essence, NASAA urged the court to dismiss Coinbase's attempts to challenge the SEC's interpretation of securities regulations.
"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," NASAA stated firmly.
NASAA, a nonprofit association comprising state, provincial, and territorial securities regulators from the United States, Canada, and Mexico, carries considerable authority in the realm of securities regulation.
Another significant aspect of NASAA's support for the SEC revolves around the Howey Test, which is used in the United States to determine whether a transaction qualifies as an investment contract, and consequently, falls under the category of securities as per federal law.
The Howey Test establishes that for a transaction to be classified as a security, it must involve an investment of funds within a collective endeavor, with the expectation of profit from the group's collective efforts. In simple terms, it hinges on the presence of an investment of funds and the anticipation of profit derived from the efforts of others.
Coinbase, in its interpretation of the Howey Test, introduced the notion of formal "contractual undertakings" between buyers and sellers as a requirement. They also argued that investors must have a direct stake in the profits, income, or assets of the issuer's business for a transaction to be considered an investment contract.
However, NASAA vehemently disagreed, stating that these particular requirements were never necessary elements to identify an investment contract. They urged the court to refrain from introducing these new prerequisites into the Howey Test.
NASAA's support for the SEC's case against Coinbase is a significant development in the ongoing debate about the regulatory status of cryptocurrencies and their exchanges. The association's stance underscores the need for a consistent interpretation of securities law within the cryptocurrency sector, with implications that extend far beyond this particular case.