Determining whether digital tokens are securities will be central to the high-stakes case brought by U.S. regulators alleging crypto platform Coinbase violated the law by failing to register as a securities exchange, broker and clearing agency.WHAT IS THE SEC ALLEGING?The Securities and Exchange Co
Determining whether digital tokens are securities will be central to the high-stakes case brought by U.S. regulators alleging crypto platform Coinbase violated the law by failing to register as a securities exchange, broker and clearing agency.The Securities and Exchange Commission sued Coinbase on Tuesday in Manhattan federal court and accused the largest U.S. cryptocurrency platform of operating illegally by evading disclosure requirements.
The SEC has brought more than a hundred enforcement actions in the past decade claiming various cryptocurrencies are securities, but the Coinbase case will be the biggest test yet of the regulator's jurisdiction over the industry. Coinbase and other industry players have been adamant that cryptocurrencies - which operate on a database shared across a network of computers, known as a blockchain - do not fit the definition of securities under U.S. law.To argue that crypto assets are securities, the SEC has relied on a U.S. Supreme Court case from 1946. The case dealt with investors in Florida orange groves owned by the W. J. Howey Co.
Securities, as opposed to other assets such as commodities, are strictly regulated and require detailed disclosures to inform investors of potential risks.Many of the SEC's crypto-related cases have ended in settlements, with companies paying fines and agreeing to follow U.S. law. In some cases, this has meant exiting the U.S. market or closing a cryptocurrency project.
Courts have also decided that investors in those assets participated in a"common enterprise" because the funds they spent were pooled by the token issuer and used to develop relevant systems.
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