Supreme Court Could Stop SEC War on Crypto

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When the leaders of the American Revolution signed the Declaration of Independence on July 4, 1776, they had no guarantee of victory. The battle for independence was ongoing and their prospects were uncertain. Despite occasional victories, these daring freedom fighters were vastly outnumbered and had difficulty retaining volunteer soldiers. Their commitment to the cause of freedom was their only chance to fight.

Cryptocurrency as an open source software industry finds itself in a similar situation. The U.S. Securities and Exchange Commission and banking regulators are trying to dismantle this fledgling industry, wielding lawsuits and a daunting array of regulatory measures designed to make compliance impossible.

Cryptos Fighting Chance is embedded in the very words and legal principles put forth by the Founders of Americas in the Constitution. They designed the Constitution on the principle of the separation of powers inspired by the Enlightenment. Their vision was of a system with three separate but equal branches of government, each acting as a safeguard against potential abuse of power by the others.

Coinbase stands at the forefront of the modern cryptocurrency battlefield as it watches a lawsuit filed by the SEC. In June, the company issued a statement in response to the lawsuit that relies on the major issues doctrine. This essential legal principle holds agencies like the SEC accountable when they circumvent the role of Congress in our constitutional structure and manipulate vague and outdated laws for their own ends.

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In recent cases that have curbed executive overreach in the Obama and Biden administrations, the Supreme Court has emphasized the importance of the major issues doctrine. This doctrine underscores the crucial point that when agencies attempt to regulate matters of significant national or political importance, they must have explicit authorization from Congress.

This doctrine is not new or untested. When the Food and Drug Administration (FDA) attempted to regulate cigarettes, justifying its action by defining them under the FDA’s drug authority, the Supreme Court struck down the agencies’ overreach. The court pointed out that nicotine, although technically a drug, did not fall within the class of palliative drugs that Congress intended when the FDA was created.

A similar verdict was delivered regarding the Environmental Protection Agencies (EPA) attempt to regulate carbon emissions. The EPA was prevented from expanding its mandate on power plant pollution to set a national carbon emissions policy, which was beyond its remit and would usurp the role of lawmakers.

The Supreme Court’s decision to strike down Bidens’ student loan forgiveness program is the most recent invocation of the major issues doctrine. Coinbase General Counsel Paul Grewal astutely observed that one could substitute crypto for student loans in the courts ruling and envision a similar outcome.

In fact, it’s much worse. The economic and political significance of falsely claiming authority over all digital assets other than BTC is not only staggering, but unrelated to the fundamental requirement that there be enforceable rights between company and the buyer. 2/3

— paulgrewal.eth (@iampaulgrewal) July 4, 2023

Apologists for SEC Chairman Gary Genslers claim that the securities laws of the 1930s successfully adapted to the internet age, and therefore can also adapt to crypto. This argument would carry weight if the SEC made similar adaptations to crypto as they did to the internet.

Over the years, the SEC has proven its ability to scale, allowing prospectus delivery over the Internet and sanctioning executive communications via social media. But when it comes to crypto, the SEC stubbornly insists that developers must comply with laws that, without nuanced adaptation, are impossible to comply with.

This reluctant approach of simply walking in and registering while blatantly ignoring the many issues raised in Coinbases’ 2022 regulatory submission is exactly why the Major Issues Doctrine as interpreted by Justices Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett is so relevant to the SEC’s approach to crypto regulation. The doctrine acts as a constitutional compass, guiding the direction of authority and limiting the overreach of various bodies.

Related: Gary Gensler Hurting Wall Street’s Little Guys

The framers of the Constitution left us with an arsenal of tools to carry out a revolution for freedom within the framework of the design of the American Constitution. Legal scholars and constitutional scholars, including Gorsuch, revive the Founders’ vision of a delicate balance of power among the three branches with major issues doctrine.

Crypto advocates such as Coinbase, Ripple, and Binance are pioneering their own revolution. They are at the forefront of a movement to decentralize power, shifting it from centralized institutions into the hands of individuals. In their struggle, they are armed with the same tools our founders used to shape this nation.

There is a striking parallel between our founders’ struggle for political freedom and the current struggle for financial freedom in the digital realm. The foundations of these two movements are deeply rooted in a quest for autonomy and freedom.

JW Verret is Associate Professor at the Antonin Scalia Law School at George Mason University. He is a crypto-forensic CPA and also practices securities law at Lawrence Law LLC. He is a member of the Financial Accounting Standards Boards Advisory Council and a former member of the SEC Investor Advisory Committee. He also leads the Crypto Freedom Lab, a think tank fighting for policy change to preserve the freedom and privacy of crypto developers and users.

This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are the sole authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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