Crypto lawyer James Murphy has called the amicus brief filed by six law scholars in support of Coinbase “devastating” for the U.S. Securities and Exchange Commission (SEC). In his post on August 12, Murphy emphasized how this brief “Absolutely Shreds the SEC’s ‘investment contract’ theory.” The group of law professors and scholars who authored the amicus brief consists of experts in securities law and related fields from prestigious institutions such as UCLA, Boston University, Fordham Law School, University of Chicago, and Yale Law School.
An amicus brief is a legal document filed by a non-litigant party with a strong interest in a case. The purpose is to provide additional information or perspective to the court. Senator Lummis, who argued that the SEC should not be able to legislate through enforcement and encroach on Congress’s lawmaking process, coincidentally filed his brief on the same day as the law scholars. The timely submission of these briefs highlights the growing resistance against the SEC’s actions.
The amicus brief meticulously traces the history of the meaning of “investment contract” since the passage of the federal Securities Act in 1933. By examining case laws, the scholars provide a chronological overview. They note that by 1933, state courts had established a consistent interpretation of an investment contract as a contractual arrangement that entitled an investor to a share of the seller’s later income, profits, or assets. These key features were integral in determining whether an arrangement constituted an investment contract.
Drawing upon the landmark Howey decision, the scholars identify a “common thread” in how investment contracts are defined. They argue that an investor must be promised an ongoing contractual interest in the income, profits, or assets of the enterprise. They further emphasize that every investment contract recognized by the Supreme Court involves a contractual undertaking to grant a surviving stake in the enterprise. This contractual undertaking has been the “key ingredient” that sets investment contracts apart from other arrangements since the term first emerged.
Murphy firmly believes that this amicus brief strikes a fatal blow to the SEC’s argument that tokens traded on Coinbase are securities. He asserts that it delivers the coup de grâce to the SEC’s position on crypto tokens functioning as investment contracts in secondary markets. With its in-depth historical analysis and logical reasoning, the amicus brief exposes the weaknesses in the SEC’s claims.
The amicus brief filed by the group of law scholars provides a compelling argument against the SEC’s assertions. It skillfully demonstrates the historical context of the term “investment contract” and highlights the importance of an ongoing contractual interest in distinguishing investment contracts from other agreements. This amicus brief greatly discredits the SEC’s stance and has the potential to significantly shape future discussions and rulings in the crypto industry.