A recent amicus brief filed by a group of law scholars has dealt a devastating blow to the U.S. Securities and Exchange Commission (SEC). The brief, which includes the expertise of professors from prestigious universities such as UCLA, Boston University, Fordham Law School, University of Chicago, and Yale Law School, challenges the SEC’s “investment contract” theory. This theory has been used by the SEC to argue that crypto tokens trading on secondary markets are securities.
The amicus brief brilliantly traces the history of the meaning of “investment contract” before, during, and after the passage of the federal Securities Act in 1933. It provides a detailed explanation, supported by case laws, that highlights the importance of a contractual arrangement that entitles an investor to a contractual share of the seller’s later income, profits, or assets. The scholars argue that this feature is the key ingredient that differentiates investment contracts from other arrangements.
After the famous Howey decision, the scholars note that there is a “common thread” in the definition of investment contracts. They emphasize that an investor must be promised an ongoing contractual interest in the income, profits, or assets of the enterprise, which is a vital component of any investment contract. Every investment contract identified by the Supreme Court involves a contractual undertaking to grant a surviving stake in the enterprise.
According to crypto lawyer James Murphy, this amicus brief delivers a decisive blow against the SEC’s claim that tokens trading on Coinbase are securities. Murphy, who goes by @MetaLawMan online, describes the amicus brief as “devastating” and notes that it “absolutely shreds the SEC’s ‘investment contract’ theory.” He believes that this brief could be the coup de grace to the SEC’s argument, as it provides a strong legal foundation for challenging the classification of tokens as securities.
The amicus brief is not the only challenge to the SEC’s authority in the crypto space. On the same day as the filing, Senator Lummis argued that the SEC cannot legislate by enforcement and encroach on Congress’s lawmaking process. It seems that both legal experts and lawmakers are questioning the SEC’s approach to regulating cryptocurrencies and are seeking clarity on the classification of tokens.
The outcome of this legal battle between the SEC and the crypto industry could have significant implications. If the court sides with the amicus brief and rejects the SEC’s “investment contract” theory, it could provide more regulatory certainty for crypto companies and investors. It could also pave the way for further innovation and adoption of cryptocurrencies without the burdensome regulatory requirements that come with being classified as securities.
The amicus brief filed by a group of law scholars has undoubtedly shaken the SEC’s argument regarding the classification of tokens as securities. By providing historical context and emphasizing the importance of contractual arrangements, the brief challenges the SEC’s “investment contract” theory. The outcome of this legal battle is eagerly awaited by the crypto industry as it could shape the future of regulation and innovation in the space.
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