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Ivy League Legal Scholars Criticize SEC’s ‘Invest Contract’ Scheme Amid Coinbase Litigation

Published August 15, 2023 6:27 PM
Omar Elorfaly
Published August 15, 2023 6:27 PM

Key Takeaways

  • Legal experts from leading universities filed an amicus brief to support Coinbase
  • A US Congresswoman files an adjacent amicus brief to support the exchange
  • The US Securities and Exchange is facing scrutiny from both governmental and private organizations.

As Coinbase is currently facing SEC litigation, several legal scholars specializing in securities law and related fields submitted  an amicus brief to support the exchange’s stance in its ongoing legal battle with the regulating body.

Experts Support Coinbase

Numerous scholars in the field of law filed an amicus brief detailing points of contention against the SEC’s ‘unregistered claims’ against Coinbase.

The brief mainly focuses on ‘investment contracts’, a term at the core of the SEC’s claim.

“To determine whether the tokens traded on Coinbase and through Prime constitute

unregistered “securities,” this Court must determine whether these “unusual instruments not easily characterized as ‘securities,’” ) are “investment contracts,” and, as such, are one of the enumerated types of “securities” covered by the Securities Act of 1933,” reads the brief’s introduction.

“Acknowledging that the term was “undefined” in the Securities Act and the Exchange Act, the Supreme Court looked to the “state courts” to assess how they had “construed” the term “investment contracts” in their blue-sky laws. 

Based on a survey of leading state court decisions, including the Gopher Tire decision from Minnesota, the Court found that the meaning of “investment contract” had been “crystallized” through those “prior judicial interpretations. With that context, we survey the development of the concept of an “investment contract” under the blue-sky laws that Howey invoked as the basis for term’s “uniform” definition. ”

The brief concludes that “In interpreting the term “investment contract” in the federal securities laws, the Court should adhere to the settled meaning of the term—consistently applied by the state courts interpreting state blue-sky laws, as well as by the federal appellate courts before and since Howey. Under that settled meaning, an investment contract requires contractual undertakings to deliver future value reflecting a business’s income, profits, or assets.”

Coinbase did not immediately respond to a request for comment

Legislative Support For Coinbase

The SEC, led by Gary Gensler, has now managed to gather opposition on many fronts. Starting with The Chamber of Digital Commerce, the governmental body tweeted  its announcement regarding the amicus brief filed, supporting Coinbase’s request to dismiss the SEC case.

Moreover, United States Senator Cynthia Lummis also filed an amicus brief , scrutinizing the SEC for its approach to the digital asset industry.

“this Court should decline the SEC’s novel effort to regulate crypto asset secondary markets on the theory that crypto assets are securities, and defer to Congress to enact a proper regulatory scheme. Coinbase’s motion for judgment on the pleadings should be granted,” reads Senator Lummis’ brief.

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