The Blockchain Association filed an amicus curiae on February 13 in the United States Securities and Exchange Commission (SEC) case against former Coinbase Global chief product officer Ishan Wahi and his associates. The defense group expressed support for the defendants’ argument for dismissal, in which they claimed that the SEC had exceeded its authority in the case. The case, alleging the sale of unregistered securities of nine tokens, is pending in the Western Washington District Court.
Calling the case the “last salvo in the SEC’s apparent current strategy of regulating the digital asset space through enforcement measures,” The amicus curiae, or “friend of the court,” noted that the SEC declared nine tokens to be securities, without prior findings. The letter stated:
“The SEC confuses the tokens themselves, which are, after all, mere software, with any purported investment contract under which those tokens were allegedly sold.”
The brief does not discuss defendants’ “significant issues” argument, but merely reminds the court of the 2022 West Virginia Supreme Court case v. Environmental Protection Agency, which found that the doctrine of “issues of importance” applies when federal agencies assert “power of great consequence beyond what Congress could reasonably be understood to have granted.”
The brief highlighted three ways in which the case could harm the blockchain industry and the general public. First, according to the brief, the token creators for those particular tokens, holders, and users “are not sued in this action, and have no meaningful way to counter the SEC’s pronouncements.”
Today we filed an amicus brief in SEC v. Wahi. While the SEC’s strategy of advancing its digital asset regulatory agenda through enforcement actions is well-documented, this case expands that effort by attempting to punish absent third parties. https://t.co/erHQvzucZZ https://t.co/jKHAI0EguF pic.twitter.com/AnBD75eSsJ
— Blockchain Association (@BlockchainAssn) February 14, 2023
It is likely that the case will be resolved instead of being judged on its merits, the letter noted, in line with historical trends. Thus, the SEC “maximized your chances of being able to claim whatever you want, with minimal risk of being held accountable for it.”
Second, the SEC case may cause exchanges to reconsider the listing of the tokens in question, according to the writing, and may have “a chilling effect” on the blockchain industry. According to the writing:
“By merely claiming that a token is a security, the SEC gives certain tokens a ‘scarlet letter,’ impairing their value, hampering any secondary market trading of the token, and interfering with technological development.”
Finally, the brief alleged that market participants are unable to determine what is or is not a security, and “the SEC has shown little willingness to answer such questions.”
Ishan Wahi and his brother Nikhil pleaded guilty in the criminal case filed against them for insider trading by the Department of Justice for the Southern District of New York. His co-defendant Sameer Ramani remains at large.
The Blockchain Association is a nonprofit advocacy group with nearly 100 members that promotes “an innovation-friendly policy environment for the digital asset economy”.
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