[nullc]

I've heard some people express the view that the SEC is currently willfully undermining due process by continuing to posture but without taking formal action which would entitle the targets to gain access to judicial review. (With an implication that they're doing this because they know their position is likely to be found unlawful.)

It's a similar accusation that I've heard lobbed against the executive branch in recent years: announce a forthcoming executive order, which would be plainly unlawful and ripe for a court to halt but then don't actually formally issue the order -- denying anyone standing to bring action over it. This achieves the intended, unlawful, effect via parties that comply out of ignorance, in preparation, or out of fear that it might suddenly take effect and leave them in the wrong.

I haven't looked into the details -- and don't even know if enough are available-- to figure out if this position is well founded.

Putting aside the due process angle, there is also a parity consideration. The market benefits from clear, enforced rules because absent them the parties most willing to violate the rules while pretending to comply have a competitive advantage. The more clear and the better enforced the rule is, the more level the playing field. It may well be better for coinbase to end up with a decision which significantly restricts their business so long as its clear enough to have the effect of restricting their competition as well -- while it's in the grey competitors with less to lose will be in a better position.

[MichaelZuo]

> This achieves the intended, unlawful, effect via parties that comply out of ignorance, in preparation, or out of fear that it might suddenly take effect and leave them in the wrong.

Though only on a fraction of parties, right?

The remaining folks would ask a much higher price in exchange for the increased risk, but they would remain.

[nullc]

Indeed, but almost no policy has 100% effect due to the limitations of enforcement.

It feels a lot like "We perform illegal searches against pedestrians that look poor, because we know they can't sue to defend their rights." -- impacts only a portion of the public! The law should be the law for everyone, the fact that it applies so some more than others is not generally a virtue. Sure less people hit by an unlawful rule is better, but NO people should be subject to unlawful rules.

More specifically for cryptocurrency there are bad selection effects: Alice and Bob each consider running an exchange. Bob is careful, realizes the law is unclear and departs the space. Alice is a cowboy and rushes in, does a much worse job than Bob would have done.

Worse, Alice may realize that uncomfortable litigation is for sure in her future no matter what she does in the space (except exiting entirely) and so she decides that she should scam big or go home: if she takes in billions from the public on a bunch of baseless hype she can pay a 2% settlement to the SEC to get free of it. ... or she can be conservative, raise a tiny amount and get ruined by any SEC action yet save countless people from a dubious investment.

Unclear rules and unequal enforcement is like taking only half the bottle of antibiotics, it breeds superbugs and still poisons the helpful bacteria.