Paradigm Files Amicus Brief Supporting Coinbase's Lawsuit vs. SEC

March 18, 2024 | Gina Moon, Justin Slaughter, Rodrigo Seira

TLDR: Today, Paradigm filed an amicus brief supporting Coinbase’s lawsuit against the SEC, which seeks judicial review of the agency’s refusal to provide rules for crypto.

The SEC’s decision to engage in ad-hoc regulation by enforcement, instead of transparent rulemaking, is clearly unworkable. Paradigm supports Coinbase’s effort to seek clear rules of the road.

Crypto assets differ fundamentally from securities, including by virtue of existing independent of any “issuer,” and deriving value from their utility in a decentralized network. In contrast, the securities laws are focused on requiring the “issuer” of securities to disclose information to investors, such as the issuer’s financial position and the biographies of its managers.

This mismatch means that brute forcing today’s securities laws onto crypto will fail to achieve the main policy goal of providing material information to purchasers, because the current required disclosures focus on the irrelevant or unavailable information. In addition, the litany of projects that were required to register as part of an SEC settlement action, or attempted to qualify a Reg. A exempt offering, have generally failed–proving that the current framework is unworkable. Repeatedly trying to smash the dodecahedron peg of crypto into the square hole of securities regulation has not, will not, and cannot work.

Recognizing the obsolescence of the current regulatory framework, Coinbase petitioned the SEC to issue applicable rules. To be clear: the SEC has the ability to tailor its disclosure regime as it has done in the past for the energy and banking industries. The SEC also has the duty to engage in transparent rulemaking, to put the crypto industry on notice and allow individuals to conform their conduct to the law. By abdicating its responsibility, the SEC is paralyzing a major and growing industry and hurting America’s prospects. Hopefully, this lawsuit will bring the SEC to do the simplest thing it could do: issue regulations appropriate and fit-for-purpose for this new and novel industry.