The Blockchain Association filed an amicus brief February 13 in the United States Securities and Exchange Commission (SEC) case against former Coinbase Global product manager Ishan Wahi and his colleagues. Advocacy groups expressed support for the defendants’ argument for dismissal, where they claimed the SEC had exceeded its authority in the case. A case alleging the sale of unregistered securities of nine tokens is being heard in the US District Court in Western Washington.
Calling the case “the latest salvo in the SEC’s regulatory strategy seen with enforcement in the digital asset space,” the amicus curiae, or “friend of the court,” brief noted that the SEC declared nine tokens as securities, without prior findings. The brief states:
“The SEC combines these tokens, which are software only, with the alleged investment contracts under which the tokens are sold.”
The brief did not address the defendants’ “central question” arguments, but instead reminded the court of the 2022 Supreme Court case West Virginia v. The Environmental Protection Agency found that the “prime question” doctrine applies when a federal agency asserts “extreme. force of consequences beyond what Congress can reasonably understand.”
Related: SEC lists 9 tokens as securities in insider trading case ‘could have broad implications’ – CFTC
The summary highlights three ways the case could damage the blockchain industry and the wider public. First, the brief states, token creators for certain tokens, holders and users “are not defendants in this action, and have no meaningful means of contesting the SEC’s statement.”
Today we filed an amicus brief in SEC v. Wow. While the SEC’s strategy to advance its digital asset regulation agenda through enforcement actions is well documented, this case expands those efforts 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
The case should have been settled rather than decided on its merits, the brief said, in keeping with historical trends. Thus the SEC “increases the possibility that it can allege whatever it wants, with minimal risk of being caught.”
Second, the SEC case could cause exchanges to reconsider the list of issued tokens, the brief said, and could have a “chilling effect” on the blockchain industry. The brief states:
“Just by stating that a token is a security, the SEC assigns a certain token a “red letter,” damaging its value, blocking secondary market trading of the token, and interfering with technology development.”
Finally, the brief states that market participants cannot determine what is unsafe or not, and “the SEC has shown a willingness to answer these questions.”
Ishan Wahi and his brother Nikhil pleaded guilty in a criminal case brought against them for insider trading by the Department of Justice in the Southern District of New York. Sameer Ramani who is accused of the code remains at large.
The Blockchain Association is a nonprofit advocacy group with nearly 100 members that advocates for a “pro-innovation policy environment for the digital asset economy.”