A lawyer at cryptocurrency trading platform Coinbase Global Inc. filed a motion this month to dismiss a class action claim that 79 of the tokens listed on the company’s platform are unregistered securities.
A group of Coinbase users are demanding refunds of transaction fees and market losses, aiming to prevent assets from continuing to trade on the platform.
Other than enforcement measures, the Securities and Exchange Commission does not indicate which cryptocurrencies are considered securities. However, federal law passed in the 1930s represents ordinary investors to help the SEC do its job by giving buyers of unregistered securities the right to return money to sellers. ..
The $ 1.5 trillion evaporation from the crypto market over the last six months could give investors new incentives to test their strength.
Joseph Grundfest, a former SEC Commissioner of Baseball who teaches law at Stanford University, said:
Cryptocurrency-related proceedings have been filed this year. Investors have filed eight class proceedings related to cryptocurrencies in 2022, according to a database maintained by Stanford University and Cornerstone Research.
US law imposes meticulous regulation and annoying disclosure requirements on issuers and intermediaries who sell securities, which are a category of assets, including stocks and bonds. They also hold potentially devastating liability to those who evade the law.
Cryptocurrency platforms are trying to minimize headaches by claiming that the tokens listed in the United States are gold-like commodities and there is no full-time federal regulator.
According to industry lawyers, the cost of making a mistake can be devastating on an exchange where US investors can buy and sell large numbers of digital tokens.
“If successful, plaintiffs will effectively freeze innocent accounts in this court. [Coinbase] Coinbase lawyers have written a motion to dismiss this proceeding for users who trade with each other with these tokens at their option. “Other digital asset trading platforms may be forced to do the same.”
Coinbase lawyers claim that the platform connects crypto buyers and sellers rather than dealing directly with users. Therefore, lawyers argue that the company is not liable as a seller, even if the assets on the platform are considered securities.
Since the cryptocurrency trading platform is not overseen by regulators and clears transactions internally rather than on the public blockchain, there is little transparency about how transactions on Coinbase are carried out. SEC Chairman Gary Gensler claims that the platform deals with customers without naming or detailing the company.
Coinbase lawyers also state that the cryptocurrency in the proceedings is not securities.
However, the issuer of Block.One, one of the tokens featured in the Coinbase proceedings, will pay $ 27.5 million last year to resolve the investor proceedings claiming that the EOS token is an unregistered security product. I agreed to. EOS is still listed in Coinbase.
XRP, another cryptocurrency in the Coinbase proceedings, is focused on continuing the SEC proceedings and is no longer available to Coinbase users.
To determine if an asset is secure, regulators and courts apply a four-part test developed by the Supreme Court of 1946 to rule orange groves. Known as the Howie Test, it involves investing money in a typical business in the hope of benefiting from the efforts of others.
Cryptocurrency proponents say that once the underlying network of tokens is sufficiently decentralized, its value no longer depends on the efforts of entrepreneurs and managers and should not be considered security. However, the lines are often ambiguous and the facts are unclear.
Gensler reiterates that many of the assets traded on US crypto platforms are probably securities. He urged companies to register with the agency as a regulated exchange similar to the Nasdaq or New York Stock Exchange.
“They know that most of what’s on the platform can be securities,” Gensler told reporters on May 18. I will take enforcement measures. “
A Coinbase spokesman said in an email reply to questions about proceedings and liabilities faced from the potential listing of unregistered securities: “This is clear from transparency, public analysis, and the SEC. It highlights the need for guidance. ” An analysis when listing new cryptocurrencies on the platform and confident in the conclusion that none of the assets offered are securities.
“We want to tackle this issue constructively, but we believe the SEC needs to publicize their ideas so that there is a meaningful debate,” said a spokesman. rice field.
A SEC spokeswoman declined to comment.
Issuers of registered securities, such as listed companies, must submit to the SEC a standardized form that discloses information that may be relevant to investors. This includes quarterly and annual revenues, key business operations and risks, and the identities of top corporate executives. They may be held liable for serious misrepresentations.
By comparison, information about cryptocurrency projects is usually disclosed in so-called white papers by authors who may or may not use pseudonyms. Documents lack formal structure and standardization and are often difficult for unsophisticated readers to understand.
“There are many inexperienced investors who generally do not understand the risks of investing in securities,” said plaintiff’s lawyer James Seritera in another proceeding against the cryptocurrency platform. “You have an unlimited token issuer. Either … and that’s just fraudulent.”
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