Coinbase’s Chief Legal Officer, Paul Grewal, has criticized the U.S. Securities and Exchange Commission’s (SEC) interpretation of “investment contract,” arguing that it violates the law based on a recent Supreme Court opinion. Grewal made these comments on July 4 through a series of tweets. According to Grewal, the SEC’s interpretation contradicts the Major Questions Doctrine opinion of the Supreme Court, specifically referring to the Nebraska case. He pointed out that replacing “Secretary” with “Chair” and “digital asset” with “student loans” demonstrated the regulator’s violation of the law.
The Supreme Court’s opinion in question is related to the case of Biden vs. Nebraska, which dealt with the legality of canceling student loan debt. The Supreme Court ruled against the Secretary of Education’s attempt to establish a student loan forgiveness program using the HEROES Act, stating that the Act did not grant such powers.
Grewal argued that the Court’s reasoning in the student loan case could also challenge SEC Chairman Gary Gensler’s interpretation of investment contracts, including cryptocurrencies. Gensler has consistently argued that the current securities law adequately regulates the crypto industry.
The Coinbase executive emphasized that the SEC’s alleged overreach, claiming authority over all digital assets except Bitcoin, is not only significant economically and politically but also disregards the fundamental requirement for enforceable rights between a business and a buyer. Grewal suggested that Congress could address this issue by passing legislation in the future, and there are ongoing efforts by several U.S. lawmakers to bring regulatory clarity to the crypto industry.
Despite the lack of specific regulations governing cryptocurrencies in the U.S., the SEC maintains its stance that most cryptocurrencies qualify as securities under the Howey test. The SEC’s website states that an “investment contract” exists when there is an investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others, based on the Supreme Court’s Howey case and subsequent case law. Although there have been disagreements from various stakeholders, the SEC has classified more than 60 crypto assets as securities based on its interpretation in different lawsuits.