Sen. Warren challenger goes to bat for Coinbase, crypto industry in SEC lawsuit

Massachusetts Senate candidate John Deaton isn’t letting the busy marketing campaign path forestall him from preventing the Securities and Exchange Commission on behalf of the crypto industry.

FOX Business was first to report that the crypto-enthusiast and lawyer, now turned political candidate, filed an amicus temporary in the Southern District of New York on Friday in support of the U.S.’s largest crypto alternate, Coinbase, in its ongoing authorized battle with the SEC.

Deaton says he’s intervening in the case on behalf of 4,701 Coinbase customers, builders and crypto buyers who need their voices heard in courtroom.

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Woburn, MA – April 12: John Deaton, GOP US Senate candidate, poses for a portrait. (Photo by Suzanne Kreiter/The Boston Globe through Getty Images) (Getty Images / Getty Images)

“SEC Chairman Gary Gensler and his agency have demonstrated that they are not interested in protecting small investors and operate only to serve their political masters,” Deaton tells FOX Business. “The SEC has unlimited resources, paid for by the taxpayer, and Coinbase is a multibillion-dollar company with the best lawyers money can buy. The consumers deserve an advocate and a voice as well.”  

Coinbase’s Chief Legal Officer Paul Grewal thanked Deaton and commerce group Blockchain Association for submitting amicus briefs in a post to his X account Friday afternoon. The SEC didn’t instantly reply to a request for remark. 

The SEC sued Coinbase in June for allegedly violating securities legal guidelines by working as an unregistered dealer vendor providing unregistered securities in the type of crypto tokens on its platform. A Manhattan choose dominated in March that the SEC has sufficient grounds to transfer ahead with the case. 

Coinbase has since filed a movement for a so-called interlocutory enchantment, asking the choose to halt authorized proceedings so {that a} larger courtroom can resolve as soon as and for all the most important authorized deadlock dividing the SEC and the crypto industry: Does the Howey Test apply to crypto transactions?

The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters (Reuters/Jonathan Ernst / Reuters Photos)

The Howey Test is the results of a 1946 Supreme Court ruling and the litmus check the nation’s highest courtroom makes use of for figuring out whether or not a transaction qualifies as an funding contract and thus a safety.

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The SEC argues that each one cryptocurrencies besides for Bitcoin are doubtless securities due to their resemblance to conventional investments like shares and bonds the place buyers purchase right into a product with the expectation of income. 

The crypto industry says the SEC is participating in a jurisdictional energy seize, trying to power digital belongings into the present framework of the nation’s securities legal guidelines, which didn’t issue in blockchain expertise once they have been established in the 1930’s. Many in the industry additionally imagine most digital belongings extra intently resemble commodities and, subsequently, belong beneath the purview of the SEC’s sister company, the Commodity Futures Trading Commission.

In his amicus temporary, Deaton takes goal at what he says is the SEC’s inconsistent views on how tokens needs to be regulated. 

SEC attorneys in the Coinbase lawsuit argued that Bitcoin, the one asset the SEC believes is just not a safety, has earned that standing as a result of it doesn’t have an ecosystem, or “network” behind it.

Deaton argues that Bitcoin arguably has the biggest and most established ecosystem, which is the explanation that buyers select to put their cash into it.

Cryptocurrency mixing platform, Tornado Cash, has been hit with US sanctions over allegations of cash laundering. Cryptocurrency Illistration image taken on Jan. 24, 2022. (REUTERS/Dado Ruvic/Illustration / Reuters)

“Bitcoin is certainly distinguishable from other cryptocurrencies but claiming it is not a security, unlike other tokens, because it doesn’t have an ecosystem, is just plain dumb,” Deaton says. 

Deaton’s temporary, which closely criticizes the SEC’s “malevolent” method to regulating crypto, helps Coinbase’s movement for enchantment, arguing that the inconsistent method in which the SEC has been making use of the Howey Test to digital belongings ought to make it a matter in the end determined by a better courtroom. 

“If the Howey test is going to be interpreted and used to include all transactions in perpetuity, an appellate court, possibly the U.S. Supreme Court, needs
to be the one who validates it,” he wrote. 

Deaton additionally cites statements from Republican SEC Commissioners Hester Peirce and Mark Uyeda in addition to authorities officers like Congressman Ritchie Torres (D-New York) expressing issues concerning the hostile regulatory surroundings beneath Gensler. 

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“The underlying lack of clarity seems to be a strategic effort by the SEC to hinder the digital asset industry. If not rooted in maliciousness, they certainly, at least, do not seem to be advancing their mission of protecting investors,” Deaton says in the temporary.

This is just not the primary time Deaton, who’s working as a Republican to unseat the incumbent Democratic Senator from Massachusetts Elizabeth Warren, has taken on securities regulators to advocate on behalf of the $2 trillion crypto industry.

Democratic Massachusetts Sen. Elizabeth Warren (L) and Republican challenger John Deaton are pictured. (Getty Images/)

But he’s now doing it as a politician and has been ready to use his bully pulpit to rally the crypto industry and its heavyweights to his marketing campaign and lift important sums of cash. It helps that Warren is among the many most anti-crypto lawmakers in Congress and an ally of SEC Chairman Gary Gensler, additionally an industry critic. 

Deaton’s involvement in crypto agency Ripple’s three-year authorized battle with the SEC earned him people hero standing amongst retail holders of the XRP token. He represented XRP buyers as a so-called amicus curiae, or “friend of the court,” and did the identical on behalf of customers of the LBC token in the SEC’s lawsuit in opposition to decentralized content material sharing platform LBRY.

Deaton’s efforts in the Ripple case have been broadly considered a part of the explanation Manhattan District Judge Torres dominated, in what was seen as a watershed second for the industry, that gross sales of the token XRP between retail buyers on exchanges, didn’t meet the SEC’s classification of a securities transaction.

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If the ruling stands enchantment, it might set a authorized precedent that the SEC doesn’t have oversight of the transactions between retail buyers who interact in secondary market transactions utilizing exchanges equivalent to Coinbase to purchase and promote crypto. 

The ruling has additionally sparked a fierce authorized debate over what makes a digital asset a safety, the central argument in many of the lawsuits the SEC has introduced in opposition to the crypto industry.  

WASHINGTON, DC – SEPTEMBER 14: Gary Gensler, Chair of the U.S. Securities and Exchange Commission, testifies earlier than a Senate Banking, Housing, and Urban Affairs Committee oversight listening to on the SEC on September 14, 2021 in Washington, DC. (Photo by (Evelyn Hockstein-Pool/Getty Images / Getty Images)

Three judges in the identical Southern District of New York courthouse have writte opposing authorized opinions on whether or not transactions involving digital belongings fulfill the Howey Test, a degree that Deaton cites in the temporary and makes use of as an argument for why Coinbase needs to be granted permission to file an interlocutory enchantment and probably remedy the regulatory riddle of digital belongings as soon as and for all.

Interlocutory appeals are tough to get granted, and it’s unclear whether or not Judge Failla, who’s presiding over the Coinbase case, will aspect with the alternate on this subject.