[gadnuk]

> In one instance, the Binance chief compliance officer messaged a colleague that, “[w]e are operating as a fking unlicensed securities exchange in the USA bro.”

Source: https://twitter.com/JohnReedStark/status/1665748594421297152

This is a legendary quote from the filing.

[setgree]

My theory is that Binance execs were having these chats in an encrypted medium (e.g. WA or Signal) but didn't secure themselves against a defector.

I think someone on the inside took screenshots and went to the feds (or started cooperating under legal pressure). There's even a leading candidate [0].

What's funny about this is it's a fine metaphor for what ails crypto as a whole. The technology is cryptographically secure, but not at all robust to much simpler betrayals, hacks, etc. If you trust overmuch in the tech and don't focus on less technically interesting but more fundamental threats, you're apt to get rekt.

[0]https://decrypt.co/124999/ex-binance-us-ceo-catherine-coley-...

[PheonixPharts]

> but didn't secure themselves against a defector

Still a surprisingly amateur move. Once worked for the Federal Government where literally everything you write is potentially subject to a FOIA request. The message all new hires were told was, very clearly: "Never put anything into writing you wouldn't be happy to be see published on the front page of the Washington Post"

Anything that was even vaguely close to failing this test was handled exclusively by a private phone call or, preferably, in person conversation.

And this was for an org that was doing nothing sneaky or underhanded in the slightest. Still if something could be misunderstood in a negative way, don't put it in text.

I'm still surprised when I see coworkers say things in slack, which is clearly able to be monitors by admins, that don't pass this test. Far more surprised when people knowingly engage in criminal activity and keep any kind of unnecessary record.

[notahacker]

Not writing down anything youd be upset another person read is a pretty standard instruction for people doing interactions with ordinary business clients anywhere that data protection legislation theoretically allows them to make a statutory request the company send records you hold about them (Probably other jurisdictions too, if their lawsuits have a discovery process)

And that's "dear junior sales team members, please don't put your opinion of the client in writing, in the unlikely event they ask for a data dump they might be a bit miffed", not "dear compliance chief, please don't write confessions to breaking laws our lawyers might be able to argue we attempted to comply with when we inevitably have to defend ourselves in court..."

[JumpCrisscross]

> that's "dear junior sales team members, please don't put your opinion of the client in writing, in the unlikely event they ask for a data dump they might be a bit miffed"

One of my first moves running a trading team is reducing or eliminating internal chat. I don’t think I’ve gone a week without at least one client receiving an inappropriate nickname. It’s harmless. But it’s not something you want showing up in discovery or a regulatory inquiry.

[kasey_junk]

I was _shocked_ when I moved from finance to tech and chat retentions (if they weren’t infinite) were set in months.

I was used to low single digit days retention. I still think that’s a good policy even without compliance issues. Keeping chat from becoming a de facto document management system.

[dogmayor]

So true. Been on both sides of this coin. Lawyers, judges, jurors will jump on any language that gives the slightest impression of bad acting.

[ABeeSea]

I’ve heard this referred to as the “green eggs and ham test” for written communication. [0]

>Would you like this in the press?

>Would you like this at Brand X?

>Like to read it on the stand?

>Like it in the government's hand?

[0]: https://www.legalethicsforum.com/blog/2006/12/over_at_white_...

[wombatpm]

Do you want it to be your word against your employer?

Will you employer visit you in jail?

Will they pony up and pay your bail?

[dragonwriter]

> The message all new hires were told was, very clearly: "Never put anything into writing you wouldn't be happy to be see published on the front page of the Washington Post"

> And this was for an org that was doing nothing sneaky or underhanded in the slightest

I disagree. That culture is one of routinely doing sneaky and underhanded things.

If it wasn’t, the rule would be “don’t do anything you wouldn't be happy to be see published on the front page of the Washington Post.”

(Outside of things that are legally cobfidential, but those are generally protected from FOIA even if in writing.)

If you are actively preventing evidence of your actions from being created, that is itself evidence of consciousness of wrongdoing.

[refurb]

Disagree.

Plenty of examples of companies that did nothing wrong, but some written comment, by some employee is enough to convince a jury that "something probably happened".

I remember one pharmaceutical company was on trial for a drug that was suspected to have a bad side effect (later analysis show it didn't). They had done nothing wrong, all data was provided to the FDA, they diligently collected post-marking data, shared with the FDA, etc.

A civil suit was brought and during discovery they found a comment that said "maybe our dose was too high?". The person who made the comment had nothing to do with the trials, didn't have the skills to interpret the data, didn't even have a medical background.

Once that was found? Boom, the company settled because that was enough to convince a jury that "they probably knew it was wrong".

It's very easy to put something in writing now that has no impact, but in a few years time is a smoking gun. It doesn't matter if you testify that around the circumstances when you wrote it ("oh, I didn't mean that"), the jury won't believe you, the prosecution will just flash that one sentence up and say "see, it obvious the company was hiding the problem".

[idopmstuff]

There are plenty of cases where you wouldn't want something perfectly reasonable to be published in the Post. The key is context - some things are complicated and require background and relevant information; if taken without that context, they'll seem bad.

Seeing as we live in a world in which people in the other political party are highly motivated to take whatever they can of their opponents (and their opponents' appointees, etc.) and make them sound bad, it's understandable that folks would be cautious of what they write down. If someone emails you a question whose answer is potentially politically sensitive, you might not want to provide a brief answer to that email that you know could be misconstrued. That isn't "evidence of consciousness of wrongdoing" - it's just understanding the reality of politics.

[legaljeopardy]

> There are plenty of cases where you wouldn't want something perfectly reasonable to be published in the Post. The key is context - some things are complicated and require background and relevant information; if taken without that context, they'll seem bad.

I agree with GP. It is a shadowy culture. The Washington Post bit is the clue when you walk in. You are working for the United States government. It is not the Washington Post you should care about, it is the Justice Department and the legal system.

If you say that politics trumps laws then you are implying extra-legal forces dominate legal forces in our system. One way such hidden power centers are created is via shadowy bureaucracies. For example, FBI should write down everything they discuss and decide. We should be able to shine a light into any government institution in our land. If everything is legally done, there is nothing to be worried about, Washington Post be damned.

[emodendroket]

> If you say that politics trumps laws then you are implying extra-legal forces dominate legal forces in our system.

OK. I guess they do because it’s common for people to get fired or programs to be killed for completely political reasons.

[Rebelgecko]

Hard disagree- the appearance of wrongdoing can be nearly as harmful for the accused and cause as much trouble as actual wrongdoing. Both should be avoided.

[wombatpm]

Another Hard Disagree. I put everything thing in writing. If it’s not written down it didn’t happen.

Want access to prod? Sure give me a ticket. I don’t trust any place that doesn’t want things written down.

And the example of a drug trial comment being taken out of context? If it looks bad in a few years maybe it should also look bad now? And maybe steps should be taken to make it better now.

Writing things down, keeping copies of emails is the only way to hold management accountable.

[tsimionescu]

In my country, there were some major anti-government protests a few years ago that pro-government media claimed were paid for by Sorosz and other such figures. My colleagues and I attended these protests and often talked about them. We also often joked about these claims by asking each other if the checks had arrived, how much they had made last night etc.

Of course, if our internal chats were subject to [the local equivalent of] FOIA requests, this would have been incredibly risky, since without the context of how much we laughed about them, the texts themselves would have looked like smoking guns. Government media would have had a field day.

This is the benign sort of thing you want to avoid putting in writing if your writing can be audited by motivated outside parties.

[nl]

> Want access to prod? Sure give me a ticket. I don’t trust any place that doesn’t want things written down.

And this is a great example of the difference between an operational role that runs on tickets and management responsibilities.

Management is all about trade-offs and compromises. By their very nature trade-offs can almost always be presented as a bad thing.

[speakfreely]

> Want access to prod? Sure give me a ticket. I don’t trust any place that doesn’t want things written down.

Being a sysadmin is very different than being part of the executive team that develops strategy.

[emodendroket]

Might there be a difference between an access request and an extemporaneous conversation?

[dragonwriter]

You seem to be providing a reason (CYA) for being sneaky and underhanded, not arguing against it being sneaky and underhanded.

[emodendroket]

This is basically the “if you have nothing to hide, what’s the problem if the police can read all your correspondence?” argument applied to an organization.

[genmud]

> If you are actively preventing evidence of your actions from being created, that is itself evidence of consciousness of wrongdoing.

Government people are humans too, not just nameless bureaucrats. Imagine working somewhere that you would never be able to make a joke, speculate on a topic, ask a question, because it could be taken out of context due to everything being documented/written down.

It is fine to desire that, but realize that there needs to be a significant pay increase and/or a significant realignment of expectations, since nobody would want to independently take responsibility or action on anything. I have worked in a culture like that and let me tell you, it was extremely difficult to have every move under a microscope 24/7 and I would never do it again.

[dragonwriter]

> Government people are humans too

Yeah, I’ve worked in government for more than twenty years.

> Imagine working somewhere that you would never be able to make a joke, speculate on a topic, ask a question, because it could be taken out of context due to everything being documented/written down.

Everything being written down makes things being taken out of contexr less of a risk. People with the attitude “don’t write things down if you don’t want to see it in the Washington Post” are, in my experience, without exception concerned primarily about things that would be problematic taken in context.

> It is fine to desire that, but realize that there needs to be a significant pay increase and/or a significant realignment of expectations, since nobody would want to independently take responsibility or action on anything

The attitude at issue is one of avoiding, not taking responsibility. People with it are the people who refuse to take responsibility even if they enjoy exercising authority.

But, yes, you need to pay people in government significantly more, no argument there.

[emodendroket]

Seems like naive reasoning in a world where such messages can easily be taken out of context. Imagine a lawsuit about a car malfunction leading to death and someone digs up some source code with a kill_child_process method. What does it matter whether that was relevant at all to the case at hand? It looks bad anyway. Anyway, such policies are similarly common in the corporate world.

[wpietri]

> I'm still surprised when I see coworkers say things in slack

I was recently talking with a friend who recently left government. They mentioned that they has a special slack emoji, "JK FOIA", so they could clearly mark things as "just kidding" to future FOIA readers.

[WeylandYutani]

In person conversation doesn't work because Zhao doesn't want to enter the US.

[krageon]

> And this was for an org that was doing nothing sneaky or underhanded in the slightest

If public scrutiny is such an issue, it is absolutely doing sneaky and underhanded things. Perhaps you have not seen them, that could be true.

[theGnuMe]

Right but in court the failure to keep adequate records may mean that the judge may rule that the absence of records is evidence of guilt. I think Google is facing this issue specifically.

[civilitty]

How does one FOIA request for the written communications of government officials like that? Asking for a friend

[PheonixPharts]

The government has done a pretty good job of making the process very easy: https://www.foia.gov/

But, just like with ChatGPT, you'll likely have to do a bit of "prompt engineering" to get a specific document. "Give me all the stuff you guys got on UFOS1!!" will likely be less fruitful then "I am requesting the email correspondence between X and Y related to the documented observation of an atmospheric event occurring on ..."

In my experience these requests are taken quite seriously.

[civilitty]

How broad can the request get? Can I ask for any communications that are related to a decision made or drafting of something that goes into the CFR?

How much should I expect to pay for these requests, especially while figuring out the prompt engineering?

[sbierwagen]

https://www.foia.gov/faq.html

>For a typical requester the agency can charge for the time it takes to search for records and for duplication of those records. There is usually no charge for the first two hours of search time or for the first 100 pages of duplication.

>You may always include in your request letter a specific statement limiting the amount that you are willing to pay in fees. If an agency estimates that the total fees for processing your request will exceed $25, it will notify you in writing of the estimate and offer you an opportunity to narrow your request in order to reduce the fees. If you agree to pay fees for a records search, you may be required to pay such fees even if the search does not locate any releasable records.

For requests that the receiving agency doesn't like, they will either ask for a lot of money or just sit on the request for years/decades: https://nsarchive.gwu.edu/foia-audit/foia/2019-03-08/25-year...

[cavanasm]

The cost of the request is often based on how many man hours it will take to fulfill. Different agencies have different rates / different capabilities for performing the document search itself. Some agencies may also reflexively deny requests, which would require a lawyer to sue them to get resolution if you believe the denial doesn't legitimately meet legal exception requirements.

[dragonwriter]

> Can I ask for any communications that are related to a decision made or drafting of something that goes into the CFR?

The broader the request, the more expensive it is and the lower the likely signal-to-noise ratio of the response is.

Also, on your specific example, there is a broad exemption to FOIA for internal deliberative process-related opinions, conclusions, and recommendations, etc.

[mrguyorama]

The "API" so to speak is the relevant laws in your jurisdiction. You may be looking for a lawyer

[scheme271]

There's about 9 exemptions that can be used to exclude information from a FOIA request ( https://www.faa.gov/foia/media/exemptions.pdf ). Primarily things regarding law enforcement, national security and privacy although there is one for wells and geological info.

[mytailorisrich]

The main purpose of not to put things in writing and instead to discuss face to face has always been not to create incriminating evidence rather than avoiding and "unsecured channel".

When you're using Signal or WhatsApp or whatever you're still putting things in writing to someone else and the risk, as we see again and again, is that this is leaked by the receipient(s). Plus ça change...

This is almost the raison-d'être of posh private members clubs.

[nl]

I think "defector" is the wrong terminology here, since it's likely that most - if not all - the US based execs who weren't charged handed over these chats to the SEC.

It is noteworthy how often this happens. Many of the people found guilty of sedition after the DC riot had the same thing happen when the majority (or a large minority) of people in their encrypted chat groups handed over them over to the FBI.

Is there an E2E encrypted chat app that does disappearing messages and doesn't cache them on the client?

[rodgerd]

Work from home is great for preventing financial crimes because the criminals know not to write things down; the people who want you back in the office are the crooks: https://onlinelibrary.wiley.com/doi/full/10.1111/eufm.12426

On edit: another example of the crypto world re-learning the rules of finance.

[Dalewyn]

>The technology is cryptographically secure, but not at all robust to much simpler betrayals, hacks, etc. If you trust overmuch in the tech and don't focus on less technically interesting but more fundamental threats, you're apt to get rekt.

Isn't this the case with anything to do with cryptography, encryption, and digital security overall?

Because let's face it: Who seriously cares if your password is cryptographically hashed with 40960-bit SHA-9001 encryption transmitted over TLS8.11 For Workgroups?

Just call up the call center and convince the scriptmonkey you really are John Dickus the Fifth and get them to reset the password for you. Easy. Done. No quantum computer required to crack the code.

[EGreg]

Also gun laws and drug laws. Trivial to get around. So what's the point of having them?

[TheDudeMan]

> "a fine metaphor for what ails crypto as a whole. The technology is cryptographically secure, but not at all robust to much simpler betrayals, hacks, etc."

I think you mean "crypto exchanges". Cryptocurrency itself is not subject to betrayals/hacks, for the most part (depending on how dumb you are at key management). And depending on how badly you selected your cryptocurrency (pro tip: just pick Bitcoin).

[tsimionescu]

Bitcoin is actually a perfect example, since it's impossible to do anything with it except moving it from one account to another without requiring trust of the other party.

[TheDudeMan]

Sending it is kinda the main point of it.

Also, you can mine fresh bitcoin without trusting another party.

[tsimionescu]

Normally, the main point of money is to exchange it for goods. But you can't securely and trustlessly exchange bitcoin for goods, since goods are not on-chain. So all the fancy cryptography is not solving the main problem that it would have been useful to solve.

[TheDudeMan]

You can buy lots of things with bitcoin. Why would the goods need to be on-chain?

[davidgerard]

A lot of this stuff was also in the CFTC complaint.

I wonder if they snagged a backup of an insider's phone.

[Melting_Harps]

> What's funny about this is it's a fine metaphor for what ails crypto as a whole. The technology is cryptographically secure, but not at all robust to much simpler betrayals, hacks, etc. If you trust overmuch in the tech and don't focus on less technically interesting but more fundamental threats, you're apt to get rekt.

That applies to all things within technology, OPSEC/INFOSEC is the very study of how to mitigate those very leaky channels, which are impossible tasks to accomplish entirely because of Human nature. I recall a post here some time ago that says that most non-leak related hacks are mainly due to social engineering, as that is the most viable way to take down an asset/target.

Honestly, CZ will likely brush this off; the US is being incredibly hostile to all things that threaten the USD; it make sense, and those that thought the USD and BTC could co-exist in the US were disillusion because of things like this.

Even that scrub Armstrong is starting to see why his pursuits to cozy up to the VC crowds and US regulators only prolonged the inevitable wherein this will return to a regulatory nightmare that favours other nations; mainland China under the CCP will continue to ban it (for nth time) in order to stifle the immense amount of capital flight out of China but it will remain legal in Hong Kong with favourable and relaxed regulations. Once again favouring the afflurent and political;ly connected who can incorporate in an absurdly HCL safe-haven like HK and excluding the poors from utilizing financial services that could help them from the exposure to the collapsing banking sector.

And thus proving again that unless its a situation like El Salvador where it becomes a national currency there is nothing to indicate that politicians have the will or ability to actually put clear regulation in place for Capital and innovation to progress in Fintech.

Which would be obvious if you have any semblance of why Cypherpunks and renowned economist like Hayek considered a free-floating, non-state issued currency the most critical thing for a free Society.

National Fiat currencies have a limited life-span, typically 35-40 years, and this always leads to economic turmoil and inevitably war; which always favours nations who can impose their neo-bondage via entities like the IMF and World Bank when the dust settles and then gain access to cheap resources, and Human capital.

Anyhow, I'm not surprised this happened, but it's a nothing-burger that will be good for those DCA there way back into this market (myself included).

[0]: https://cointelegraph.com/news/china-gains-from-strict-us-cr...

[TheDudeMan]

This does not apply to cryptocurrencies (the good ones), but it definitely does apply to cryptocurrency exchanges.

[yieldcrv]

bounty program

[whiskeytuesday]

insert XKCD five dollar wrench comic here

[max_hammer]

https://xkcd.com/538/

[arcticbull]

Ahh yes Coley! So we finally find out where she's been stashed for the last two years.

[civilitty]

Is you takin' notes on a criminal fuckin' conspiracy?

https://www.youtube.com/watch?v=Ly82nabRRYc&t=80

Robert Rules would be proud

[EA-3167]

You'd think at some point people would learn, but I suppose human nature and selection bias are at play.

[pcbro141]

https://twitter.com/SECGov/status/1665779371108335618

SEC just tweeted the quote

[jeroenhd]

I get why you would say something like that in astonishment.

By why would you ever send that out over a medium that'll leave a paper trail?

Thank goodness that criminals aren't very smart. Their idiocy is doing society a huge favor.

[tedivm]

Oh that's easy- this was the compliance officer, and by showing that he raised concerns over this he may be able to claim that he did his job as best he could under the circumstances. I'd need to see the rest of the context, but this could very well be a "cover your ass" message.

Imagine if you're a security officer at a company and were just overridden on a decisions- you'd definitely want to shoot off an email describing the issue so that later on you aren't held responsible for it (of course depending on the severity quitting may also be desirable, but not everyone is in a position to immediately drop a job).

[notahacker]

If you're covering your ass, you write something with cautious "could be interpreted as..." wording that distances yourself from it, not "we're doing a fking crime bro!"

[nafey]

I am wondering if raising objections internally will be sufficient in this case. As a leading executive at Binance shouldn't he be expected to report any malicious activity to the authorities?

[dsr_]

Yes, and the SEC mandates that.

[mytailorisrich]

It's a global phenomenon. People can't abstain from posting online and from sharing on messaging platforms these days.

It's even been noticed by contemporary philosophers:

https://youtube.com/shorts/Blw2dNZwZzg?feature=share

[hef19898]

Just imagine the paper trail this new breed of criminals will leave!

[unity1001]

> Thank goodness that criminals aren't very smart

No, the criminals are extremely smart. Its just that these were amateurs who didnt know that in Anglosaxon common law, you have to avoid being honest about anything and even deny any wrongdoing even if you get caught the act of murdering someone. Then you can exercise plausible deniability, claim incompetence or mental incapacity and you can negotiate your sentence. Any kind of honesty works against you in the US law as a result. That's how you end up with people who are total experts in their field testifying in courts that they "didnt know" that something they did would cause so much harm to something or somebody or the society.

As of this very moment, thousands of much, much bigger corporations are actually destroying the entire US society in a real way and not like these amateurs who were just shuffling some funny money. But the real psychos know how common law works. There wont be any trail of their wrongdoing, and when there is, there will always be plausible deniability in that trail...

[w7]

> these were amateurs who didnt know that in Anglosaxon common law, you have to avoid being honest about anything and even deny any wrongdoing even if you get caught the act of murdering someone

Ignoring the "Anglosaxon" buzzword here, none of this is unique conceptually to US law, or foreign conceptually to anyone who's told a lie when younger. It's instinctual for many when they know they've done something wrong. Trying to paint human nature as a unique problem that US law faces, or promotes, is itself dishonest.

> claim incompetence or mental incapacity

Neither of these get you "off the hook"; that's a misconception.

> That's how you end up with people who are total experts in their field testifying in courts that they "didnt know" that something they did would cause so much harm to something or somebody or the society.

It can be either dishonesty, or lack of omniscience by the expert in question. Unless you're a mind reader, you have no idea. This is why testimony is evaluated along with other aspects of a case, and not alone.

> There wont be any trail of their wrongdoing, and when there is, there will always be plausible deniability in that trail...

Plausible deniability does not shield you from all liability.

[unity1001]

> Ignoring the "Anglosaxon" buzzword

The 'Anglosaxon' term is a long-standing political science, history and diplomacy term. Its not something that can be ignored, especially because...

> none of this is unique conceptually to US law

... it is.

The common law derives from the medieval !Anglosaxon! feudal law, which is based on contracts, agreements, negotiations and precedents. It can be 'interpreted' by the judge, who takes on the role of the feudal lord of the earlier times, and he or she can 'interpret' the law or precedents. The persecution or the defendant can negotiate any outcome. This trait of the common law system causes all the parties to open the 'bargain' from the maximum bets that they can imagine, assuming that it will be 'negotiated down' eventually. Which obligates the need for lying and denying that was mentioned earlier - if you deny any kind of wrongdoing even when caught red handed, you have a better chance of negotiating something better than if you were honest. The only sizable countries that use this law system are the UK, the US, Canada, Australia, and NZ if you count as sizable. Along with a number of smaller island states.

The ENTIRE rest of the world uses the civil law system that descended from the Napoleonic law, which descended in turn from the French Revolutionary principles. It does not rely on agreements, contracts, negotiations or precedents. It cannot be 'interpreted' The law is made by the democratic parliamentary authority and it clearly outlines crimes and punishments and there can be no negotiation made. Even the reductions in sentencing or the modifications that can be done to the final decision on anything are clearly outlined. Including the benefits that confessing a crime brings. Whereas lying is penalized further. There is no 'negotiation' that can be done in any way. That is why civil law encourages confessions and telling the truth in contrast to the common law which allows you to negotiate.

Which is also the reason why the lawyers get upper middle class salaries and income in entire rest of the world but make obscene, irrational income in the US - when the legal system allows outrageous decisions, reparations, sentences that can only be negotiated through professional lying, posturing, playing down or up, personal relations in between the lawyers, prosecutors and judges, it encourages the mess that one can see in the US to happen.

In Europe, judges and lawyers and prosecutors function more like clerks - the law is clear and solid. The rewards and punishments are the same. Has someone done what he or she shouldnt have done? Yes. What is the penalty for this? This particular thing. That is applied. There is no 'negotiation' anywhere in the process.

This difference not only makes the Anglosaxon legal system quite different from entire rest of the world, but it also causes the social, economic and political life in the Angloamerican world and the rest of the world to be very different. A corporation can get away with destroying the environment or killing hundreds of thousands people with their product or the new drug. Even if they know beforehand what will happen and start to repress information and bribe experts to lie on their behalf to sell their product. Because, when they get caught, what will happen will be an eventual negotiation. In the rest of the world that does not happen - there is no way to negotiate down any sentence that may befall on your corporation, but most importantly, you, the perpetrator...

[linksnapzz]

>It can be 'interpreted' by the judge, who takes on the role of the feudal lord of the earlier times

The judge is separate from the prosecution (who are referred to in court as "the state" or "the government"). This is called "judicial independence".

>The persecution or the defendant can negotiate any outcome...

...provided that outcome is preferable to having the jury decide.

>Which obligates the need for lying

No, that's perjury if done under oath. Or, in the case of prosecutorial misconduct, grounds for a mistrial.

>The ENTIRE rest of the world uses the civil law system

No, it does not.

>which descended in turn from the French Revolutionary principles.

No, it's even older than that.

>It cannot be 'interpreted'

You have never been sued in France, and you have never seen the inside of a US courtroom except on TV.

>Which is also the reason why the lawyers get upper middle class salaries and income in entire rest of the world but make obscene, irrational income in the US

The average US lawyer makes less money than the average web developer in the Bay Area.

>In Europe, judges and lawyers and prosecutors function more like clerks - the law is clear and solid.

Europe, equipped with legal technology far in advance of what the Anglophone world must deal with, has eliminated ambiguity in language to such an extent that the legal profession there is now a form of bookkeeping. Soon, the Sorbonne law faculty will be replaced by Droite-GPT (which will still take the month of August off, because reasons...)

>In the rest of the world that does not happen - there is no way to negotiate down any sentence that may befall on your corporation, but most importantly, you, the perpetrator...

The Code Napoleon has eliminated corporate malfeasance in the non-english-speaking world. Quite remarkable.

[jcranmer]

> The 'Anglosaxon' term is a long-standing political science, history and diplomacy term. Its not something that can be ignored, especially because...

Well, being perhaps overly pedantic, but it should be written Anglo-Saxon, and there's a reason that it's hyphenated.

> The common law derives from the medieval !Anglosaxon! feudal law [...]

I have literally heard no one refer to it as "Anglo-Saxon" law before--it's "common law" or sometimes a formulation like "in the Anglosphere" or "English-derived law." Calling it Anglo-Saxon, in fact, would be wrong, because it's not Anglo-Saxon--it's Norman. (And, we're getting incredibly pedantic here, Anglo-Saxon rule was never feudal.) Even Wikipedia's page listing other terms for common law never suggests Anglo-Saxon, the closest being Anglo-American.

> The ENTIRE rest of the world uses the civil law system that descended from the Napoleonic law,

LOLNOPE. Actually, I think a majority of the world population might not even be on the civil law system (whether derived from Napoleonic code or not). There's a lot of Islamic law and customary law going on in several countries, especially several populous ones. Not to mention that many civil law countries never incorporated the Napoleonic code or any of its descendants.

> The persecution or the defendant can negotiate any outcome. This trait of the common law system causes all the parties to open the 'bargain' from the maximum bets that they can imagine, assuming that it will be 'negotiated down' eventually. Which obligates the need for lying and denying that was mentioned earlier - if you deny any kind of wrongdoing even when caught red handed, you have a better chance of negotiating something better than if you were honest.

Uh... I mean, by this point, it's pretty clear to me that you have at best a superficial understanding of how common law legal systems work, because this is confusing as heck, and it's muddled to the point that I'm not sure what you're trying to argue.

I think you're starting by talking about plea bargains, which is a concept that only exists for criminal prosecutions, and a quick perusal of Wikipedia suggests that some civil law countries do have facilities that are similar to plea bargains. But we're not talking about criminal prosecutions here, we're talking about civil disputes, and both civil and common law jurisdictions allow parties to settle out of court to resolve a dispute.

[w7]

Long standing in what circles? I've only seen it in Russian derived or connected media, political think, and institutions. The primary source of papers using that term to refer to US law seems to be the Russian State University of Justice.

I don't think I've seen an authoritative source elsewhere use it, because it would be like pretending the Norman conquest never had an effect on legal proceedings. As if there is some unbroken historical lineage.

This is why I labeled it a buzz word, it's a phrase with a specific (negative) connotation attached to it, used by specific media, as a catch-all for describing institutions in the US.

https://euvsdisinfo.eu/what-do-the-pro-kremlin-media-mean-by...

[unity1001]

> Long standing in what circles?

Long standing in history, long standing in diplomacy, long standing in actual freaking Louis XIV administration communique, long standing in practically everything.

No offense but just because you people have a beef with Russia at the moment and they are using the term, the rest of the world is not going to change how they speak so that you dont get offended.

> I don't think I've seen an authoritative source elsewhere use it

Obviously you are not a student of history.

[notahacker]

The problem with writing that your company is knowingly committing a crime in an instant message to colleagues has little do with "negotiation" and everything to do with evidence, which funnily enough is taken into account in most legal systems influenced by Napoleonic codes...

It may surprised you to learn that criminals also commit crimes and lie about them in countries whose legal system is not based on common law.

[w7]

Their entire statement of

> civil law system ... does not rely on agreements, contracts, negotiations or precedents. It cannot be 'interpreted'

betrays that they've never examined legal proceedings in either system.

Contracts apparently don't exist in civil law, and when asked to explain the differences between "Jurisprudence Constante" and "Stare Decisis", I guess "Jurisprudence Constante" means precedent doesn't exist!

I think they're confused on the differing weight and roles of case law in rendering decisions between the two systems, and over corrected.

[unity1001]

Nowhere in my comment it says that criminals in other countries do not lie. Or the admission of guild is not considered evidence. It clearly outlines the differences in the legal systems and how the competent criminals navigate the former. If Binance people had any experience, they would be talking by using well rounded and vague words even among each other like how any exec in the US does, and they would avoid providing any such evidence. Moreover, they would easily be able to claim ignorance and deny any wrongdoing.

I recommend you read my comment again.

[baby]

Because that's his job? He's the compliance officer

[saiya-jin]

we don't hear from the smart ones, do we

[koolba]

There’s clearly some extreme selection bias when it comes to leaving a paper trail admitting to crimes.

[johndhi]

what's stupid is that quotes like this, not actual substance of what their business practices are, are the only way the SEC can establish what is and isn't a "security." there is no real truth or objective test and the SEC has offered no meaningful guidance. so they just determine this based on subjective emails the CEO sent once.

[jcranmer]

The definition of "security" is pretty objective (Howey test), but the answer it produces tends not to be liked by people in the crypto space, so they argue hard about why it's not a definition of security.

What quotes like these do is make it trivial to prove the mens rea (intent) requirements, and put a lie to claims that they didn't know it was a security or that their interpretation as not-a-security was reasonable.

[dontreact]

Putting this here in case it's useful. Please correct if it's wrong. What is the Howey test for whether something is a security?

""" The Howey Test asks whether a transaction constitutes an "investment contract," which is a type of security. If it is an investment contract, it must satisfy four criteria:

It is an investment of money. The investment is in a common enterprise. There is an expectation of profits from the investment. Any profit comes from the efforts of a promoter or third party.

If the answer to all these questions is "yes," the transaction is likely an investment contract and, therefore, a security. However, please note that this is a simplified explanation. The actual determination can be complex and might require a detailed analysis by legal professionals. """

To me it DEFINITELY sounds like crypto is a security, but it seems like it mostly hinges on whether people expect to make a profit by investing. Which some people do and some people don't. But most people do right?

[jcranmer]

If you're really, really motivated, you can make facially-plausible arguments against any of the four factors. (Coinbase does this, for example).

Common enterprise and expectation of profit are the two factors that are the weakest, and for a pure cryptocurrency like Bitcoin or Ethereum, there's probably not enough to meet common enterprise there. Although by the time you get to staking--especially an exchange offering to stake on your behalf--you'd probably pass the threshold of common enterprise, and you should assume your service meets the Howey test.

[mrguyorama]

Importantly, you don't have to convince yourself that you don't meet the Howey test. At the end of the day, if it comes to it, you have to convince a judge while they are being also courted by an adversarial party.

It doesn't matter what your company's interpretation is if a judge says "nah dog that isn't right".

What matters is whether you genuinely believe your interpretation is reasonable

I don't think any of these crypto companies have ever believed they could convince a judge, hence all the hemming and hawing in the public sphere in an attempt to build pressure against the SEC to either give them an out by making a very specific statement that they can work around, or by getting an administration to push the SEC to ignore all the bad stuff in crypto land.

[Ajedi32]

Interesting. I'd answer those questions as "Yes. No. Maybe. No." So definitely not a security.

1. Is cryptocurrency an investment of money? Obviously yes, at least in the sense you have to spend money to purchase or mine it.

2. Is cryptocurrency investment in a common enterprise? No. What enterprise? Common with who? Maybe if it's a token issued by a company or something and tied to their profits somehow, but that doesn't apply to any of the common cryptocurrencies like Bitcoin, Etherium, Monero, etc.

3. Is there an expectation of profits? This depends on entirely on the person buying the token and what they intend to use it for.

4. Does any profit come from the efforts of a promoter or third party? No. What promoter? What third party? If the value fluctuates you can make a profit, but there's no third party involved exerting "effort" that's involved in that process.

If you want to argue with me on 2 and 4, explain how cryptocurrency meets those criteria but not, say, gold.

[dontreact]

2: The more people buy and hold Bitcoin, the more valuable it becomes.

I asked ChatGPT about the definition of common enterprise:

The 7th and 2nd Circuits use a "horizontal commonality" test, where a common enterprise is found if the profits of the investors are interdependent - i.e., if the success of the enterprise is tied to the success of other investors. Essentially, the investors' funds are pooled and they share in the profits and losses.

3: Overwhelming majority of people who buy gold buy it as a hedge against inflation. In the past 5 years everyone I personally know who has bought cryptocurrency was expecting it to increase massively in value (expecting profit). 4: There have been a huge amount of cryptocurrency pump and dump stories where the promoters have benefitted immensely. In those cases it seems pretty clear that those are securities. In fact pretty much anything that isn't a top-2 coin at this point is subject to this sort of behavior from what I've seen.

[Ajedi32]

2 is also true of gold and any other commodity.

3 I'd quibble with you about "overwhelming majority", but yes that's a common use of gold. It's a fairly common use of cryptocurrency too though, especially in countries with high inflation.

4 Maybe in that specific situation yes. Sounds like you agree that's not all cryptocurrencies though. It's also kinda weird that something could go from not being a security to being one (and back) depending on how people happen using it at any given moment in time. E.g. If someone somehow managed to orchestrate a pump and dump scheme with silver, would it temporarily become a security for that brief moment in time and then go back to being a commodity afterwards?

[kajaktum]

Do you seriously think that cryptocurrency becomes a billion dollar industry because...people use it to do what? exactly? Pretty much 99% of the people that put money in crypto expected the price to go up and sell. I have not seen any mention of economical use except in third world countries. In which case, crypto is just a roundabout way of charity I guess?

Crypto people _say_ their technology have this and that use but all they _do_ is trade them.

[Melting_Harps]

> I have not seen any mention of economical use except in third world countries.

This is peak HN, if there ever was such a thing; you do realize that the Third World (an erroneous use of the term that relates to nations that were aligned with the Soviet Union but used to denote underdeveloped nations) comprises the most of the Human population; and if figures are correct about System D [0], it is actually the 2nd largest economy in the World and growing due currency collapses and hyper-inflation being wrought around the World.

In recent literature on the informal economy, System D is the growing share of the world's economy which makes up the underground economy, which as of 2011 has a projected GDP of $10 trillion.The informal economy is usually considered as one part of a dual economy.

Seriously, this is the most typical yet horridly-informed view on this matter and gets tossed in the echo-chamber; it's like saying that the USD (or any fiat currency) is really useless because the FOREX market (the biggest Industry in the World only after Agriculture) negates its utility because people only seem to trade it.

I'll be the first to tell you that 99% of crypto is a scam but seriously just stick to something you actually understand before posting these inept diatribes.

0: https://en.wikipedia.org/wiki/System_D

[axus]

Maybe profit is the modern-day perception of why you'd buy crypto-currency. All I could hope for would be for the tokens to be kept secure and available for spending, that's already a high bar.

I can see the argument against proof-of-stake, doesn't your quantity of tokens increase without doing anything?

The way I see it, other crypto-currencies only have the payment-processing system component. There's no expectation that some "Bitcoin corporation" is working hard to increase the value of individual bitcoins. It's like buying Chinese currency, the promise is that you can spend it in some places more efficiently than dollars, not that China is working hard to make a yuan/renmenbi worth more than a dollar.

[CuriousCosmic]

> I can see the argument against proof-of-stake, doesn't your quantity of tokens increase without doing anything?

It depends.

With Algorand for example where staking is "fully automated" and you don't actually even have to be online to stake or have delegated to an online party? Then yes.

With Ethereum where you run a node secured with your stake? No. You have to maintain a staking node and mitigate potential threats/failure modes which would lead to downtime. It's kinda like being paid out for an SLA. If you can't maintain uptime and correct functioning, you don't get paid and potentially you owe money. Now if you outsource the operation of a staking node, it's still the same situation but you are just outsourcing to "the cloud" or someone else.

With Cardano where you have stake pool operators and delegators? Also no. If you run a stake pool, you essentially are in the same situation as with Ethereum. You have an SLA target of practically 100% and get penalised for failing to meet it. However for delegates (people who assign their stake rather than run a pool themselves), it's still no just "money go up". You are being paid for picking reliable, functional pools and voting with your stake that they should be trusted. And that is a job that doesn't just stop once you pick a pool, you still need to monitor the pool to verify that they are performing. And it's lower risk but there is no assurance that your funds would continue to increase unless you do your job and pick pools that operate correctly and reliably.

Those cover the big variants of Proof of stake that I am aware of.

[HWR_14]

You are almost correct. It doesn't matter whether most people make a profit. It just matters that they are investing believing they will make a profit. Buying my worthless stock or investing in my pyramid scheme are both securities even if I'm the only one who makes anything.

It matters that the person buying reasonably thinks it could lead to profits. Not that it necessarily does.

[jrflowers]

> Putting this here in case it's useful…

ChatGPT is a text generator. It is “useful” for writing sentences in a context where correctness and understanding are less important than syntactical uniformity and word count.

Edit: Ok, I guess people want ChatGPT responses.

Risks when using ChatGPT instead of research while discussing financial securities:

Accuracy: While AI models strive for accuracy, there can still be errors or misunderstandings. They might oversimplify complex concepts, miss nuances, or even provide incorrect information. It's always a good idea to verify information from multiple reliable sources.

Bias: AI models are trained on existing data, which might contain inherent biases. Thus, the output of AI might also reflect these biases, although it is unintentional. Lack of deep understanding: While AI models like ChatGPT can process and generate language based on patterns they learned during training, they do not possess actual understanding or intuition. They are unable to think critically or provide expert judgment.

Outdated Information: As of its last training cut-off (September 2021 for ChatGPT), the model might not have the most current information or developments in the field of financial securities. Regulation and legality: There are regulatory considerations in financial markets, and AI models may not be fully updated or able to provide guidance in line with current laws and regulations.

[itake]

who is buying crypto and not expecting to make a profit from it?

[codetrotter]

> who is buying crypto and not expecting to make a profit from it?

Me. I put my savings in Bitcoin because I dislike the tradfi system.

All I want is to be in control of my savings and to be able to freely transact with anyone anywhere in the world.

I am still affected by the exchange rates to USD and EUR. But the hope is that in the future I will be able to use BTC directly more often and not even have to touch USD or EUR.

Perhaps one day even my country will get with the times and allow me to pay my taxes in BTC directly instead of having to exchange it to government funnymoney first.

[SketchySeaBeast]

> Perhaps one day even my country will get with the times and allow me to pay my taxes in BTC directly instead of having to exchange it to government funnymoney first.

Something tells me your government cares more about their funnymoney than yours.

I can't imagine a government wanting to take on the volatility of bitcoin for a tax payment. What possible compelling argument is there for them to do that?

[preseinger]

there is no universe in which a (edit: financially sound) nation will accept tax payments in a denomination over which it has no influence or control

(edit: nations that peg their currency to the euro or the dollar are clearly exceptions to what i'm describing here)

this is literally money 101 type stuff, wars have been fought over this stuff, and it's insane that crypto folks don't seem to understand any of it

[imtringued]

Why do you care about paying taxes in funny money? I never understood complaints about inflating money by gold bugs or cryptocurrency advocates. The presence of a mismanaged currency is your opportunity to profit so you should be cheering for its collapse. The only situation where you end up losing out is if you have a fixed income in the mismanaged currency. You want your tax bill to inflate away so the government accepting Bitcoin for taxes is not that meaningful to you.

I mean, if I follow the same logic I should advocate for collapsing the economy with tight money policies because I can then work on financial innovations that undo the government intervention.

[toast0]

People using crypto for funds transfer. Buy now, transfer immediately, with an expectation that the other end sells immediately. No desire or expectation of profit.

[civilitty]

People buying narcotics and narcotics accessories.

[tornato7]

People buy commodities like Oil to make a profit, too. The question is, what cryptos are commodities and which are securities?

[steveBK123]

Is it a future / forward / swap / put / call / etc? Security.

Is it a barrel of oil / unit of BTC? Commodity/Currency.

[dagaci]

For many people inside an defintely outside the USA sphere, theres a lot of utility in holding some cash money in Crypto even as a staging point for payments.

[creato]

People paying ransoms.

[rcme]

You could be buying it to interact with a smart contract.

[vkou]

In theory, yes.

In practice, most of the interaction with smart contracts consists of locking up your money in one and expecting yield.

[EGreg]

Please tell me, how is Bitcoin a security?

Speaking to various security lawyers there were two terms that are extremely vague in the industry:

1) "Common enterprise". What does that mean? Gary Gensler openly said in a speech Bitcoin isnt a security because there is no "common enterprise." When he was saying these words he made a motion with his elbows like you've got a buddy. That's the closest I got into his mind for what "common enterprise" means. But really, if you go by the widest definitions, "common enterprise" means anything where various entities are all united in winning, e.g. miners mine, people buy and hold, it's all a common enterprise. By that definition, almost everything is a security, including Bitcoin, despite what even a hawk like Gary Gensler says.

2) "Equity securities". As opposed to non-equity securities such as debt. Let's say all tokens are securities. But are they "equity securities" meaning you have to register with the SEC as soon as you have more than 2000 holders? But what makes a security an "equity security" specifically? Is it the ability to vote? Then governance tokens are "equity securities". Is it the ability to receive dividends from some profits? Then maybe Liquidity Pool tokens on Uniswap are equity securities.

But nevermind that these terms are not well defined, even in the statutory law or case law. The vagueness is actually broader than that.

All shows like Yu Gi Oh, Pokemon, etc. have been running, technically speaking, unregistered securities offerings throughout the world and United States, yet the SEC does nothing. They are textbook cases of the Howey Test:

1) People (kids, in fact!) buy Yu Gi Oh trading cards

2) There is an investment of money (either they nag their parents, or they actually spend a non-trivial proportion of their own life savings)

3) With an expectation of profit. Witness how many of them don't actually use the cards, but keep them in mint condition (and as we have seen SEC successfully argue in the recent case SEC vs LBRY, if even a few people buy with expectation of profit, then ALL those sales are securities).

4) From the efforts of others -- namely the producers of the show, and their promotion of Yu Gi Oh trading cards. Trading! Perhaps even selling!

5) There is definitely a common enterprise, that isn't even decentralized. The Yu Gi Oh show is produced in Japan and shown in the USA, and drives the sales of the cards. Cancel the show, and the cards fall in price. Yu Gi Oh Abridged series even lampooned this, to great comedic effect.

Oh those foreign-owned Japanese companies, preying on our kids selling them investment contracts! Do they really think the kids are sophisticated investors who think things through when they keep their mint-condition cards! Who will buy the top and be holding the bag after the show is canceled?

So being a textbook definition of Howey, why did the SEC never go after Pokemon, Yu Gi Oh and any of the other "merchandising" companies? How about Marvel with their mint-condition comics? Isn't that a "common enterprise" since some people buy comics for their investment value?

But vagueness actually broader than that. According to some experts, everything is a security: https://www.linkedin.com/pulse/everything-security-chris-har...

This article was shared on HN at some point, and it shows how the SEC has at times considered even transactions outside the united states, which did not have any character you'd normally associate a security, a security transaction in the USA. So at this point it starts bordering on the absurd.

If you take Objectivism to its logical conclusion, it could seem that it's morally better to torture a man for a $100 profit, as long as you could get away with it. But then Ayn Rand throws in "as befits a rational being", as a sort of no true scotsman argument that avoids the logical conclusion.

Similarly the SEC has been using "Sufficiently Decentralized" as a way to avoid the logical conclusion that they should go after a ton of other large ecosystems. For example, Hinman famously did it with Ethereum: https://www.sec.gov/news/speech/speech-hinman-061418

But now after he left, the SEC is revisiting that: https://decrypt.co/46456/regulator-coined-term-sufficiently-...

Today, Gensler says Bitcoin is not a security. Tomorrow, it could be considered one.

But wait, it gets worse.

Let's remember that the STATES also have their own definition of a security. In fact, the states on the West Coast (from Washington to California) consider anything a security that puts capital at risk. Yes, that's right, even if it doesn't meet the Howey test, as long as you have put your capital at risk, it's a security transaction! You don't need an expectation of profit. Wow!

https://www.theselc.org/which_states_apply_the_risk_capital_...

I have asked securities lawyers and they have confirmed that MOST KICKSTARTER CAMPAIGNS ARE TECHNICALLY SECURITIES SALES according to these state laws, they just don't enforce it.

Many of you live in California, so all of you who have done kickstarter campaigns have probably violated your own state's securities laws. But it's so absurd that they haven't bothered enforcing those.

About the only things that aren't at securities transactions, by the way, are donations. That's when people simply send money with no expectation in return. Hex tried to leverage that with their "sacrifices".

Think you can just airdrop coins to people? There's no "investment of money" right? Well, using human logic that would be correct. But there have been some precedent back in the 90s when people showed up to drink beer, put their contact info and got free stock, or something like that. And the SEC said that even that was a security, presumably because the contact info was worth something, or maybe some other reason, it's not actually spelled out clearly in the case law. So now, although there has never been a single SEC case going after an airdrop, lawyers are cautious.

Yes they laws are protecting you from getting free stuff in your wallet! Who knows kind of loss you can incur by getting free stuff with no obligation!

Anyway, of course there are important scams to go after and the SEC has a job to do. I think it's an important job. But I'm just showing you how absurd the thing can get if you try to use actual definitions of words in the Howey Test and take it to their logical conclusion, and what it actually means.

This isn't limited to Securities laws. Remember the Infrastructure Bill? Well, it said that a "broker" is anyone who builds software. Now if you build a wallet, you might have to KYC all your users. Except the Treasury said they won't enforce it. How nice (what about under the next admin?) Well, the Bitcoin lobby got them to exempt Bitcoin through an amendment around proof-of-work, but that's pretty much it.

Oh and Europe is about to pass the Cyber Resilience Act that might create penalties for any open source software that doesn't pass a check by their cyber security watchdog agencies, which haven't been created yet for this bill.

I'll just finish with a couple words about FINCEN, because OFAC and FINCEN are far more serious than the SEC. (And FATCA also enforces things like the Travel Rule worldwide, and soon the Travel Rule will require everyone to track everything).

You know all of you who build marketplaces and handle money? Well, you might be a MONEY TRANSMITTER. According to the Bank Secrecy Act, you have to register and then the States will slap you with a lot of requirements, like maintaining a surety bond. But, there are exemptions, I'll let you read about them here:

https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20...

Here's the interesting thing. These are only exemptions on the FEDERAL level. The individual states might have a DIFFERENT definition of "money transmission business" and they might apply their own local laws to you. It might be that two sided marketplace you're building, it's violating money transmission laws in a dozen states. Maybe. I've asked lawyers for a list, and very few actually have them.

But here is a useful link, enjoy: https://abnk.assembly.ca.gov/sites/abnk.assembly.ca.gov/file...

Alright entrepreneurs, good luck navigating that!

[olalonde]

Some evidence that the Howey test isn't that objective and clear:

1) Gary Gensler, now SEC chairman, used to claim that 3/4 of the cryptocurrency market were not securities[0]. He has changed his tune significantly since then.

2) The SEC chairman can't answer this simple question: "is Ethereum a commodity or a security?"[1].

[0] https://twitter.com/ZK_shark/status/1650689125580668931

[1] https://youtu.be/h_oAr4wn7M4?t=1048

[JumpCrisscross]

> Gary Gensler, now SEC chairman, used to claim that 3/4 of the cryptocurrency market were not securities[0]. He has changed his tune significantly since then.

Has he? Most of the market is Bitcoin and Ethereum. To my knowledge, the SEC hasn't gone after anyone solely cashing trading those.

> 2) The SEC chairman can't answer this simple question: "is Ethereum a commodity or a security?

He also doesn't have to answer whether a taco is a sandwich. There haven't been any enforcement actions based solely on whether Ethereum is a security.

Binance launched an ICO. Zhao raised hundreds of millions of dollars from investors, and then co-mingled investors' and clients' assets with his own. Their CCO admitted, in writing, to running an "unlicensed securities exchange." The poster child for web3 and crypto folks having no place near our financial system is such protestations that the law isn't clear. It's abundantly clear in the places it's being broken.

[johndhi]

The fact that there have or haven't been enforcement actions against X or Y shouldn't be how we're supposed to determine what is or isn't illegal. There should be a speed limit (65mph) and if you drive over the speed limit, you should know you're violating the law. If the speed limit is "if the cops pull you over, you violated the law" then we have no clarity for entrepreneurs. At least some level of clarity for entrepreneurs is critical to a healthy economy.

[Tesl]

They aren't entrepreneurs, they are crooks.

[imtringued]

Most company ICOs are clearly securities. Everything else is most likely not.

[fisherjeff]

I could be wrong (not a lawyer) but I don’t believe there’s a scienter requirement for unregistered offerings. Regardless, it makes the case much tighter, and will give the SEC a ton more leverage to reach a settlement.

[johndhi]

So your position is that the US Government intends to require every creator and trader of crypto to complete registration, notification, filing requirements with SEC? They pretty obviously don't want to enforce that or ask that of our populace. So we just get them enforcing whenever they want to (probably because Zhao is Chinese, basically).

[Animats]

Creator, yes. If you're an issuer and sell to US persons, you have to register the issue as a security. The SEC brings the hammer down on about two issuers a month. They're still working through the ICO boom of 2017-2019, and just getting started on the NFT boom of 2020-2021.[1]

The SEC is basically reactive. They usually take action after people complain that their money disappeared. So they're always behind.

[1] https://www.sec.gov/spotlight/cybersecurity-enforcement-acti...

[EGreg]

It's not just not liked by crypto people, but other very popular industries could be selling securities, if you actually apply the test. Tell me the flaw in the following, and if there is no flaw, why did the SEC never go after them to make an example:

All shows like Yu Gi Oh, Pokemon, etc. have been running, technically speaking, unregistered securities offerings throughout the world and United States, yet the SEC does nothing. They are textbook cases of the Howey Test:

1) People (kids, in fact!) buy Yu Gi Oh trading cards

2) There is an investment of money (either they nag their parents, or they actually spend a non-trivial proportion of their own life savings)

3) With an expectation of profit. Witness how many of them don't actually use the cards, but keep them in mint condition (and as we have seen SEC successfully argue in the recent case SEC vs LBRY, if even a few people buy with expectation of profit, then ALL those sales are securities).

4) From the efforts of others -- namely the producers of the show, and their promotion of Yu Gi Oh trading cards. Trading! Perhaps even selling!

5) There is definitely a common enterprise, that isn't even decentralized. The Yu Gi Oh show is produced in Japan and shown in the USA, and drives the sales of the cards. Cancel the show, and the cards fall in price. Yu Gi Oh Abridged series even lampooned this, to great comedic effect.

Oh those foreign-owned Japanese companies, preying on our kids selling them investment contracts! Do they really think the kids are sophisticated investors who think things through when they keep their mint-condition cards! Who will buy the top and be holding the bag after the show is canceled?

So being a textbook definition of Howey, why did the SEC never go after Pokemon, Yu Gi Oh and any of the other "merchandising" companies? How about Marvel with their mint-condition comics? Isn't that a "common enterprise" since some people buy comics for their investment value?

[ac29]

> The definition of "security" is pretty objective (Howey test)

It should be noted the Howey test applies to one type of security: investment contracts. There are other types of securities that the Howey test doesnt apply to.

[Animats]

> The definition of "security" is pretty objective (Howey test), but the answer it produces tends not to be liked by people in the crypto space, so they argue hard about why it's not a definition of security.

This. The Howey test really is clear. If there's an issuer behind a crypto asset, it's a common enterprise for Howey Test purposes. Bitcoin has no issuer at this point. Etherium, maybe. Just about everything else in crypto has an issuer raking off the profits.

[JumpCrisscross]

> no real truth or objective test and the SEC has offered no meaningful guidance

The securities allegations revolve around BNB's ICO. Binance is being sued by the CFTC in respect of its Bitcoin and Ethereum trading.

[unyttigfjelltol]

The quote represents the most knowledgeable person in the defendant organization about the regulations, tacitly agreeing with the position on crypto stated by the head of the SEC. "Specifically, [the SEC head] claimed that 'everything but bitcoin' could be considered a security in the world of cryptocurrency, while bitcoin could be considered a commodity due to its stature and resolutely-decentralized nature." [1] The defendant entity could establish a bona fide defense, shut operations, or face the consequences. While bare crypto may or may not require "quotes like this" to allocated, crypto pioneers made it relatively trivial to determine they are acting outside the law, by issuing interest bearing crypto accounts and tying payments to the prospects of entities.[2]

[1] https://www.nasdaq.com/articles/secs-gensler-warns-crypto-in...

[2] https://www.sec.gov/oiea/investor-alerts-and-bulletins/inves...

[jxramos]

I love that, at most it establishes that they think that they engage in securities dealings but what if they're actually mistaken in that regard or merely speak that way as a shorthand for recognizing that others, namely the SEC itself, thinks of them as securities dealers or whatever. Leaning on their self identification alone does sound weak when we surface these points out in the open. We have no objective test like you say then why are they even talking about this stuff. Do the hard work to define and wrestle with the necessary concepts. Sounds like this is all cutting edge stuff though.

[jxramos]

I just had a funny thought experiment along this self identification route. "I identify as a trillionaire" and finding that claim triggering the IRS to go hunt me down to find all those taxes I never paid as a trillionaire.

[CPLX]

There is like 100 years of detailed precedent and caselaw around what a security is. The crypto scam artist just don't like it.

[mgamache]

And yet there is no clear definition offered by the SEC.

https://www.smitheilers.com/blog/coinbase-sues-securities-an...

[CPLX]

https://www.sec.gov/corpfin/framework-investment-contract-an...

[mgamache]

Coinbase and the Howey test https://www.coinbase.com/blog/coinbases-staking-services-are...

[jcranmer]

Coinbase is engaged in motivated reasoning here; they're trying to find every reason they can to not label their services as securities. I'd have to look up precedents to find more detailed guidance as to particular prongs, but offhand:

1. I really need to look up case law to decide if Coinbase is right on the investment of money part here, and I suspect in part it relies on technically-detailed arguments I have no knowledge of. But if your money is locked up, it's almost certainly meets this prong, and my understanding is that staking does lock your assets for a time.

2. The not-"common enterprise" argument here boils down to "it's all down by computers, so how can it be a common enterprise?" Which feels like the sort of gotcha legal loophole that plays out poorly in courts, although I will admit that I don't know the case law in detail to evaluate this claim well.

3. Expectation of profit is derived in large part from how it's advertised, which... yeah, this is going to point towards security. I should note in particular that in trying to describe why Coinbase's staking service doesn't meet this prong sounds suspiciously like the original scheme in the case that provided the Howey test. This alone should cast significant doubt on the entire analysis.

4. The "efforts of others" again relies on the "it's just computers, so obviously it can't count, right? ... right?" style of argument as prong #2, but even less convincingly.

[khuey]

According to a court of law or according to Coinbase?

[quickthrowman]

More accurately, Coinbase is claiming their staking service does not count as a security under the Howey Test. A judge or panel of judges will be the ones making the actual determination, Coinbase’s claim has yet to be tested in court.

[CPLX]

The only way this even tries to make sense is by creating the idea that the obviousness of it being a security (you're lending something of value to an enterprise in hopes of generating return) doesn't count, because it's a computer or something.

Like if the exact same thing was accomplished by people it's obviously a security but since it's done by code (which was magically and immaculately conceived, presumably) then it's different somehow.

It's not different. Coinbase wants people to give them money, have them do [complicated thing] then give them a return on that money.

[rcme]

Coinbase's argument hinges upon a blockchain not being a "common enterprise." The rest of their arguments are even weaker.

[imtringued]

They compare staking to mining. Cryptocurrency mining is a business activity that fulfills the last three criteria but mining on its own is not a security. The only confusion is whether the staked cryptocurrency counts as an investment of money.

[ipaddr]

What case law do you think this falls under?

[CPLX]

Going out on a limb here but my assumption is that the specific one probably relies on the detailed citations of law and statute contained in the 136 page complaint written and filed by government attorneys.

[preseinger]

it's pretty clear that almost every cryptocurrency/coin classifies as a security

anyone arguing otherwise almost certainly has a dog in the hunt

[ryan69howard]

Chief Compliance Brofficer?

[optimalsolver]

Admissible in court, bro:

https://www.youtube.com/watch?v=14WE3A0PwVs

[mhh__]

First piece of advice I ever got in Finance was to never say anything you wouldn't want your mother seeing on the frontpage of tomorrow's paper.

[webXL]

I'd give some benefit of the doubt like perhaps it was taken out of context, but... "bro"!? roflmao at the brazenness

[Analemma_]

I would love to know what context could surround the sentence "we are operating as a fking unlicensed securities exchange in the USA" that makes it not an admission that they are operating as an unlicensed securities exchange in the USA.

[HWR_14]

There's a ton of context that could work. Anything where it's framed as either (a) untrue or (b) temporary and about to be mitigated.

"What we are being falsely accused of is: 'we are operating...'"

"We are operating... To fix this we must xyz"

But I consider the second one to make the most sense. Saying "we have a problem" is a common first step of fixing it. Saying "we will be committing a felony if I don't win this argument" is usually a good card to play.

[freejazz]

those are both admissions, with (a) being an admission against interest. they could try and say that it was untrue or temporary (the latter being an admission of guilt, so not a smart move) but that'd be for a jury to determine, most likely.

you can't just go to court and disavow all statements you've made as being ironic or untrue, facially, as a means of end-running the claims against you. you have to litigate your defense.

[HWR_14]

They aren't both admissions. (a) is saying the context of the statement makes it clear they were saying it was untrue at the time. This happens all the time in, for instance, libel cases, where your attorney will have to submit court papers that include the words, in order, something like "freejazz kills puppies". Obviously, the rest of the sentence or paragraph makes it clear they were quoting someone.

You're right they cannot ex post facto just be like "we were joking". They would be "you're talking the quotes out of context".

And (b) can be future looking. But "temporary and mitigated" is probably a great way to go into these hearings. Maybe not according to the letter of the law, but in general it tends to work out well for the people involved. Since most agencies issue punishments to influence future behavior.

[nubb]

sarcasm and hyperbole soon to become illegal. thanks. good work.

[lotsofpulp]

Does the context that it was written by the chief compliance offer in a work email make any difference? Should people be held to account for what they express at any time, or is “sarcasm” a valid cover your ass for any situation?

[mrguyorama]

Can't wait for a CEO to announce that their child labor was "Just a prank bro"

[woah]

Bro, if you don't file those fcking papers I told you to file last week "we are operating as a fking unlicensed securities exchange in the USA bro", and that would really suck

[ZephyrBlu]

All I can say is, wen movie?

[throwaw12]

is "[w]e ...." literal text from a message?

when this kind of wording is used usually in english? For me typing "we" is much easier.

reason I am asking is, if text was written "e are operating as fk....." then it's very easy to claim: "oh I wanted to write "they are", when talking about FTX" and blame them for everything (IANAL)

[sowbug]

Setting aside whether the original letter was actually capitalized, the rule is common in English writing: https://style.mla.org/capitalizing-start-of-quotation/ ("If the first letter of the first word you quote is capitalized in your source, use a lowercase letter enclosed in square brackets").

More specifically, The Bluebook: A Uniform System of Citation provides one of many sources of angst for first-year law school students in the United States. Its secondary purpose is to prescribe much of the structure and formatting of U.S. legal writing, down to whether there's a space between the period and the capital S in something like "314 F. Supp. 1217 (N.D. Tex. 1970)" (there is), and whether there is one between the period and the 3 in "945 F.3d 265 (5th Cir. 2019)" (there isn't).

The most important Bluebook rule when altering quotations is not to change the meaning of the original text. The second most important rule is to explain the purpose of each alteration through a long set of rules (whether emphasis was in the original, whether a typo existed in the original, etc.). That covers your concern.

[nightpool]

In legal context it almost always means "We" quoted as "we" or vice versa to match the capitalization required for the context it's quoted in. if it was "e are operating" then they probably would have notated it differently.

[ZephyrBlu]

I don't know why he quoted it like that because in the actual filing it's literally quoted as "we are operating as a fking unlicensed securities exchange in the USA bro.".

Not capitalized or missing the "w". Page 29 if you're curious. Ctrl + F also works.

[smeyer]

I'm not sure why the tweet adds the brackets around the w, since I don't see it in the SEC complaint. Here's what's in the linked complaint. For clarity, the "emphasis added" part is from the SEC bolding the text inside the quote, not something I added.

111. As Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, “we are operating as a fking unlicensed securities exchange in the USA bro.” (Emphasis added.)

[TylerE]

It's an editorial correction. E.g. fixing a typo to what was obviously intended, while indicating it isn't an exact quote.