It happens when the law is not clear and the law enforcement has to take a stand on it to enforce it.

The opinion only shows how little, read none what so ever, experience some people have in figuring out compliant business processes. Yet another rude awakening for the, let me be blunt, cluelessly naive and in some cases outright criminal tech crowd that seems to flok in huge numbers around crypto in general.

That attitude started aroind the time Uber got big. Maybe even with AirBnB. In a sense, crypto is exactly the tech eco system we deserve. Good that there is finally some enforcement of rules that apply tp basically everyone else.

There's lots of laws that aren't "clear", but people don't phone the police up and ask them what they're going to do. They talk to a lawyer and get advice.

Because in this case the agency that enforces the rules is also charged with creating them, and how the rules this agency creates apply to novel instruments with no centralized issuer, centralized operator or investment contract, is not at all clear.

No, Congress creates the rules. The SEC decides how to enforce them. A court then decides who's right in any given action.

No, in most cases, Congress makes laws that say things like “we delegate our rule making authority to the EPA with regards to air pollution” (Clean Air Act). The agencies then create the rules; https://en.wikipedia.org/wiki/Code_of_Federal_Regulations

Sometimes the court system decides the agency’s rules exceed the authority granted to them by Congress.

Other times Congress uses the Congressional Review Act or new legislation to say “that’s not what we meant”.

The laws pertinent to the SEC's complaint are the '33 Act, '34 Act and court cases which constructed the Howey Test. None of them were created by the SEC.

The '33 and '34 Acts give the SEC the ability to write the regulations, via wording like "under rules and regulations which the Commission shall prescribe". Congress defines a variety of things, but the SEC makes most of the nitty gritty procedure/rules out of those definitions and directives.

The Howey test exists because the SEC enforced said new-ish regulations against someone, and the court agreed with them, holding Howey liable for violations of the '33 Act as implemented by regulators at the SEC.

All this makes the statement "No, Congress creates the rules" upthread inaccurate.

> the SEC makes most of the nitty gritty procedure/rules out of those definitions and directives

The violations the SEC describes in its complaint (¶ 8) are not nitty gritty. It's all bare-boned Exchange Act malfeasance.

Agreed, but entirely irrelevant to the point at hand.

> entirely irrelevant to the point at hand

What? The laws Coinbase is being charged with violating are creatures of the Congress and courts, not the administrative state. This is not a case of "the agency that enforces the rules is also charged with creating them" [1].

[1] https://news.ycombinator.com/item?id=36307273

Coinbase wants the SEC to come up with a process for them to register with the SEC that's amenable to cryptocurrency, via a "petition for rulemaking"; https://www.sec.gov/rules/petitions/2022/petn4-789.pdf. (The SEC is, rightly IMO, saying "nah".)

Again, the point is that both Congress and the SEC make "the rules" around securities. Congress defined securities and gave the SEC the ability to write the rules for securities, with some specific requirements. The SEC's rules can't violate the various Acts of Congress, but they've still got quite a bit of rule-making power delegated to them.

> Congress defined securities and gave the SEC the ability to write the rules for securities, with some specific requirements

Right. Like choosing what's important and what's not. (It's also a totally dishonest framing by Coinbase. Their business model, a unified broker, exchange and custodian, is fundamentally in violation of the '34 Act. They're asking the SEC to break the law.)

What makes no sense to me is the stupidity of fighting the case. I understand Coinbase's PR rallying the crypto base before. They were making a lobbying push to change the law. And the base would throw money at them. But now? Either management has reason to believe they can run out the clock on the SEC before Congress changes the rules. Or they're as delusional as the base.

No, Congress creates the legal framework, while the SEC creates the rules (regulations).