Blockchain Association files amicus brief in Wahi case, says SEC exceeded authority

by · February 14, 2023

The Blockchain Association filed an amicus brief on February 13 in the US Securities and Exchange Commission (SEC) case against former Coinbase Global product manager Ishan Wahi and his associates. The legal group expressed its support for the defendants’ argument for dismissal, arguing that the SEC had exceeded its authority in the case. The case alleging unregistered securities sales of nine tokens is being heard in the US District Court in Western Washington.

Calling the case “the latest salvo in the SEC’s apparently ongoing strategy of regulatory enforcement in the digital asset space,” the amicus curiae, or “friend of the court,” noted that the SEC declared nine tokens to be securities, with no prior findings. The card was called:

“The SEC is conflating the tokens themselves, which are after all just software, with any purported investment contract under which the tokens were allegedly sold.”

The brief does not discuss the defendants’ “big questions” argument, but merely reminds the court of the 2022 Supreme Court case in West Virginia v. Environmental Protection Agency which found that the “big questions” doctrine applies when federal agencies assert “elevated” consequential authority beyond that of Congress reasonableness could be understood to have given.”

Related: SEC Lists 9 Tokens as Securities in Insider Trading Case ‘Could Have Broad Implications’ – CFTC

The brief highlighted three ways the case could harm the blockchain industry and the wider public. First, Short stated, token creators of the particular tokens, holders and users “are not defendants in this action, and have no meaningful way to counter the SEC’s statements.”

The case will likely be settled rather than judged on its merits, the brief noted, in keeping with historical trends. Thus, the SEC “maximized its chances of being able to allege what it wants with minimal risk of being held liable for it.”

Second, the SEC’s case could cause exchanges to reconsider listing the tokens in question, the brief said, and that could have “a chilling effect” on the blockchain industry. The card was called:

“Just by proclaiming that a token is a value, the SEC gives certain tokens a ‘scarlet letter,’ which weakens their value, prevents any secondary market trading of the token, and interferes with technological development.”

Finally, the letter asserted that market participants are unable to determine what is or is not a security, and “the SEC has shown little willingness to answer these questions.”

Ishan Wahi and his brother Nikhil pleaded guilty in the criminal case against them for insider trading by the Department of Justice in the Southern District of New York. Their accomplice Sameer Ramani is still at large.

The Blockchain Association is a nonprofit advocacy group with nearly 100 members that promotes “a pro-innovation policy environment for the digital asset economy.”