May 1 (Reuters) - (The views expressed here are those of the author's Reuters columnist.)
Amid a surprise enforcement action against crypto defendants by the US Securities and Exchange Commission, the industry has developed a broad, albeit lengthy, argument that the agency should be penalized under the "key inquiry doctrine" recently formalized by the US Supreme Court. . Landscape
That argument took place last fall in Manhattan federal court in a case closely watched by the Securities and Exchange Commission, Ripple Labs Inc. And two Ripple executives were charged with selling unregistered securities. Earlier this year, the agency's insider trading case against former Coinbase Inc ( COIN.O ) employee Ishaan Wahi in federal court in Seattle grew. And now Coinbase has appeared in a white paper trying to convince regulators not to take the cryptocurrency exchange's proposed enforcement actions.
So far, the SEC has only briefly addressed this new theory in a footnote in the Ripple case, arguing that the theory is flawed and inconsistent (as I will show). But if Ripple, Coinbase or other crypto groups file amicus briefs to advance doctrinal arguments on key issues, the agency will have to provide a more detailed answer.
The crypto theory is based on a Supreme Court decision last June regarding the United States Environmental Protection Agency's authority to regulate greenhouse gas emissions.
The justices sided with West Virginia and other states in challenging the EPA regulations. But they didn't just make a firm decision. Instead, the Supreme Court has formally adopted a long-standing principle that limits critics of so-called administrative law from extending executive powers beyond statutory boundaries.
The central issues doctrine, as the Supreme Court named and defined the principle in the EPA case, states that federal agencies cannot exercise control over "special" matters involving matters of "significant economic and political importance" unless authorized by Congress.
Ripple Labs supporters reiterated this precedent in amicus curiae memos a few months later, urging the SEC to drop its case against the token issuer. Ripple partners, a network of non-profit investor choice advocates and cryptocurrency investment firm Paradigm Operations LP, argued that the SEC violated the principle of the current inquiry by pursuing crypto targets without waiting for Congress to legislate the agency's power in a growing industry. Paradigm's cautionary letter acknowledged that the SEC has legal authority to regulate the issuance of digital tokens, but argued that the preemption principle would treat the tokens as securities, preventing them from controlling the secondary market.
Former Coinbase head Ishan Wahi outlined key issues in the SEC's request to dismiss the insider trading case last February. Wahi's attorneys said on Jones Day that the SEC abused its statutory authority to regulate "investment contracts" by applying the term to digital currencies. Under the school of thought on the subject, they argue that the SEC does not have the authority of Congress to regulate digital assets.
Crypto groups, including the Blockchain Association and the Digital Chamber of Commerce, have reiterated the weak argument that the SEC is passing a clear line of authority. Coinbase cited the central issue doctrine in an April 3 amicus brief in the Wahi case and outlined its arguments to the SEC in an April 19 white paper.
Coinbase's argument in this article, published last Thursday, is complete: the key issue doctrine, according to Coinbase consultants Sullivan & Cromwell, "leads to trillions of dollars in regulation of the crypto industry."
"Ultimately, Congress is the appropriate body to develop a comprehensive regulatory framework for the digital asset industry," Coinbase said. "Until then, the commission cannot assert its authority over the entire industry as a law enforcement agency."
And if the SEC does not change its course and decides not to take enforcement action against the exchange, Coinbase warned, the company may want to take important matters to court, which could have dire consequences for the agency.
Coinbase and the SEC declined to comment. The SEC has not publicly responded to arguments in the Whimsy case about the limits of its jurisdiction under the existing hardship doctrine, and likely won't until after reaching a tentative settlement with a former Coinbase employee, according to court filings.
But the SEC put the response to the main arguments of the request in a footnote to the summary of the December 2 response in the case of Ripple.
The agency's argument is threefold. First, the SEC affirmed that the Supreme Court's decision in the West Virginia case limited federal agencies' authority to enact new regulations in important areas, but did not limit the agencies' authority to act. Additionally, according to the SEC, Congress has given the agency broad regulatory authority under existing securities laws. The agency said it is working within the legal framework to take action against digital tokens that meet the Supreme Court's 1946 definition of security, which avoids a conflict between Congress and the executive branch over encryption issues.
Finally, according to the SEC, there is diversity in the cryptocurrency industry debates. SEC Many crypto groups have criticized the agency for not issuing crypto-specific rules and regulations, instead using case-by-case enforcement procedures to develop crypto policy. But if those groups are correct in the implications of the Supreme Court's key case doctrine, as the agency suggests, the SEC has no right to enact these rules without congressional approval.
Ripple's SEC letter doesn't connect the dots, but emphasizes that cryptocurrency targets can't have both, while also taunting the agency that it doesn't issue any rules, saying it doesn't have jurisdiction over the SEC's case doctrine. . participate in the organization.
It's all in the footnotes as you mentioned. And given the initial settlement in the Wahi case, we may not see an all-out battle over the doctrine's impact on cryptocurrency regulation for some time.
But if the SEC proceeds with a lawsuit against Coinbase, the core issue doctrine could be, yes, a key issue.
know more:
Frustrated Coinbase tried rare ways to force the SEC to highlight crypto ambiguities.
Coinbase has denied claims by US regulators that it violated crypto regulations.
Sorry Crypto World, but the SEC is not backing down on "regulation enforcement".
(Reporting by Alison Frankel) Editing by Lee Jones
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