The Zombie Marmot Apocalypse: The SEC’s Coinbase Complaint and What Comes Next

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The Zombie Marmot Apocalypse: The SEC’s Coinbase Complaint and What Comes Next

Preston Byrne, a lawyer and partner of Brown Rudnick’s Digital Commerce Group, developed something of a reputation for being a skeptic about the legal propriety of selling cryptocurrency tokens in the United States. “Virtually nobody has done this correctly. To date I have not seen a single crypto-security that has been properly structured,” he said in a 2014 CoinTelegraph article.

People thought Byrne was crazy at the time, but the SEC’s recent lawsuit against KuCoin and its complaint against Coinbase prove that he was right. In 2018, the SEC started to bring its first set of enforcement actions against coin-related projects, and the first settlement was with EtherDelta. Then-SEC Director Bill Hinman added fuel to the ICO fire when he made his famous “Hinman Speech” which set out the (now-discredited) “sufficiently decentralized” exception to the Howey test.

The SEC’s complaint against Coinbase charges the company with violating the registration requirement of the Securities Act of 1933 in relation to its custodial staking offering, operating as an unregistered broker-dealer, and operating as an unregistered clearing agency. The SEC is seeking a permanent injunction against Coinbase from operating an unlicensed exchange, which could shut down Coinbase’s core business completely.

The Zombie Marmot Apocalypse is here, and crypto is in need of a legal tune-up. Byrne believes that the answer is “new exchanges that aren’t carrying all this regulatory baggage.”