The North American Securities Administrators Association (NASAA), representing state securities regulators, has refuted claims made by cryptocurrency exchange Coinbase in its defense against the United States Securities and Exchange Commission (SEC). NASAA firmly argues that digital assets should not receive special treatment under securities laws.

Equal Application of Securities Laws

In an October 10 filing in a New York District Court, NASAA supported the SEC’s lawsuit against Coinbase, which accused the exchange of violating federal securities laws. Coinbase defended itself by asserting that the digital assets and services it provided did not qualify as securities.

TradFi grey hairs file Amicus Curiae on behalf *drum roll* 🥁 the SEC, in SEC vs. Coinbasehttps://t.co/ukeHcfcX8B

NASAA landing page screenshot and story attached. PROTECT. pic.twitter.com/DczmmRVlm5

— Mikko Ohtamaa (@moo9000) October 10, 2023

However, Vincente Martinez, NASAA’s general counsel, contends that the SEC’s position is not “novel or extraordinary” and aligns with the agency’s longstanding stance. NASAA argues that there is no need for explicit congressional authorization to apply established securities laws to digital assets.

The Significance of the Howey Test

A crucial element of the lawsuit hinges on the judge’s interpretation of the Howey test, used to determine what qualifies as an investment contract. Coinbase argued that digital assets do not meet all the criteria of this test. In response, Martinez stressed that the Howey test was designed to be adaptable to encompass technological advancements in the securities markets, including those involving blockchain technology.

Martinez asserted that Coinbase’s attempt to narrow and misapply the established legal framework to evade regulatory obligations should be rejected, emphasizing that digital assets should not be treated as special under the law.

Assessment of Crypto Impact

Martinez also criticized Coinbase’s claim invoking the “major questions doctrine,” which argues that executive agencies like the SEC require congressional approval for issues of major political or economic significance. Martinez disputed this, stating that the “digital asset industry” cannot reasonably be considered a significant component of the American economy, as most digital assets lack practical economic use cases or broad adoption beyond speculation.

He emphasized that digital assets are not widely accepted for goods, services, or government obligations like fees or taxes. Therefore, they are not economically useful assets as a class. NASAA’s submission aligns with the SEC’s request to deny Coinbase’s motion to dismiss the lawsuit.

Under the leadership of NASAA President Claire McHenry, NASAA members are advocating for investor protection in an era of technological innovation. Learn more about our legislative and regulatory priorities in this changing landscape: https://t.co/yNPvjGrUhC pic.twitter.com/4Gs5XU0NDt

— NASAA (@NASAA) October 10, 2023

NASAA comprises 68 members, including securities regulators from all 50 U.S. states, Canada, Mexico, and several U.S. territories, underscoring their substantial interest in this case.