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A group of North American securities regulators, the North American Securities Administrators Association (NASAA), contends that digital assets should not be treated as “somehow special.” In a filing made on October 10 in the United States District Court for the Southern District of New York, supporting the U.S. Securities and Exchange Commission (SEC) in the case against Coinbase, NASAA argues that digital assets should not receive unique treatment when it comes to applying securities laws.
In June, the SEC sued Coinbase, accusing the publicly traded cryptocurrency exchange of violating federal securities laws. Coinbase countered, asserting that digital assets and services it provided did not qualify as securities and that the agency was overreaching.
NASAA’s General Counsel, Vincente Martinez, argued that the SEC’s stance is not “novel or extraordinary.”
“The SEC’s theory in this case is consistent with the agency’s longstanding public position… It is also well within the bounds of established law.”
The agency also contended that the SEC does not require explicit congressional authorization to apply established law to digital assets.
The case’s cornerstone is expected to hinge on the judge’s interpretation of the Howey test, which is used to determine what qualifies as an investment contract. Coinbase has argued that digital assets do not satisfy all aspects of the test.
Martinez emphasized that the Howey test was designed to be adaptable enough to encompass various technological advancements in the securities markets, including securities sold and traded on blockchains. This is in line with previous arguments made by the SEC.
“The Court should reject Coinbase’s attempt to narrow and misapply the established legal framework to avoid regulatory obligations,” Martinez said, further asserting that digital assets should not be regarded as something special.
Martinez also criticized Coinbase’s claim that the “digital asset industry” is a significant portion of the American economy, using the “major questions doctrine.” He argued that digital assets cannot be reasonably considered a substantial component of the American economy due to their limited practical economic use cases and widespread adoption for speculative purposes.
“As a class of assets, digital assets are not economically useful,” Martinez noted, adding that Coinbase has overstated the size and significance of this ‘industry,’ especially the portion regulated by securities regulators.
NASAA’s submission aligns with the SEC’s request to the judge to dismiss Coinbase’s motion to have the SEC lawsuit rejected.
NASAA, which comprises 68 members, including securities regulators from all 50 U.S. states, along with regulators in Canada, Mexico, and various U.S. territories, expressed a significant interest in the case.
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