The North American Securities Administrators Association (NASAA), comprising state and provincial regulators from the US, Canada, and Mexico, has thrown its weight behind the Securities and Exchange Commission (SEC) in its lawsuit against cryptocurrency exchange Coinbase.
The SEC’s case against Coinbase revolves around the classification of digital tokens, and NASAA’s brief supports the SEC’s stance that these tokens are securities. Consequently, they should adhere to the same regulations and oversight as traditional securities like stocks and bonds.
NASAA put forth several arguments to support the SEC’s viewpoint. Firstly, they assert that Congress intentionally defined the term “security” in a broad manner to ensure effective regulation of investments, irrespective of their form. Furthermore, the association claims that the digital assets mentioned in the SEC’s enforcement actions unequivocally qualify as investment contracts under existing securities laws.
Additionally, NASAA challenges Coinbase’s focus on the Howey test by arguing that the test does not necessitate the presence of formal contractual agreements to classify something as a security. They also highlighted Coinbase’s staking program, alleging that it too falls under the purview of an investment contract.
NASAA has repeatedly refuted Coinbase’s attempts to alter the Howey test—a benchmark used to determine what constitutes a security. The association argues that digital tokens, despite their novel technological basis, are not fundamentally distinct from other securities. They further assert that any attempt to distinguish them or argue for a change in their classification is misguided.
This intervention by NASAA signals a consolidated regulatory viewpoint on the issue, suggesting that Coinbase might face an uphill battle in its efforts to redefine digital tokens in the context of the securities market.
NASAA’s amicus curiae comes shortly after SEC requested that a federal judge deny Coinbase’s motion to dismiss the regulator’s lawsuit against the cryptocurrency exchange.
The agency argues that Coinbase was mistaken in relying on a recent court ruling involving Ripple Labs Inc., which found that Ripple did not violate federal securities law by selling its XRP token on public exchanges. The SEC points to a subsequent ruling in the case of Terraform Labs that rejected the court’s reasoning in the Ripple case.
