SEC vs Coinbase Lawsuit **MASSIVE DECISION for Crypto**

wow I went into the SEC versus coinbase

lawsuit hearing today January 17th 2024

honestly expecting that the SEC would

come prepared with an incredible

argument for why the 12 tokens that they

listed were a security and coinbase I

thought was going to have a hard time

defending against that in this video I'm

going to give you my opinion in terms of

who won this case right now the motion

at hand the decision at hand for the

judge is whether or not to let the case

continue or to dismiss the case to

decide the case based on the pleadings

thus far or to throw the case out the

judge has indicated she is going to wait

to make a decision and she is not going

to rule at the moment so uh without the

judge ruling at the moment we are going

to go through some of the summaries and

some of the big cases here and we are

going to come up with a conclusion I

want to be clear I personally think the

Judge already has her decision I just

think she needs to structure her

decision properly I think she was

sitting there listening writing her

decision and so I think this case is

already decided I am 90% certain which

way this case is going to go though I

could be totally wrong I'm just a

neutral person who looked in from the

outside going okay I think the SEC is

going to get rolled here and let's just

say I was surprised so what happened

okay here's the gist of what happened

I'm going to give you the summaries and

we'll go into some more details

first there were multiple cases where

the judge argues what makes crypto not

its own thing why is it a security and

the SEC argues well there's this thing

called the hoe test okay the hoe test

comes from a lawsuit the SEC versus hoe

Co okay and there are four components to

the hoe test the hoe test makes it clear

that something is a a security when you

provide an investment of money in a

common Enterprise with the expectation

of profit to be derived from the efforts

of others but there are two parts of

this that are a little complicating uh

one there's the actual how we test as to

whether or not something is a security

and then you have to evaluate well is it

a primary transaction we're talking

about or a secondary transaction we're

talking about so I don't want to lose

you I want to make this as simple as

possible if apple apple comes to you and

says yo so we or or let's do a different

example Elon Musk comes to you and says

I'm going to sell you shares of SpaceX

and I own SpaceX right and he is SpaceX

he's representing SpaceX in this case so

SpaceX goes directly to you and says

here are shares of SpaceX well that is a

primary issuer transaction which is

regulated by the SEC now let's say you

own coinbase shares or um uh SpaceX

shares and they're this laptop or

whatever right this laptop represents

those SpaceX shares and I meet you in an

alley somewhere and you're like yo I

want to sell you some SpaceX shares you

want my SpaceX shares I'm like sure I'll

give you this handgun for them or these

Donuts or money whatever right you're

like deal and we shake hands and we

exchange the shares for some exchange of

value that could still be a security

this is still potentially a security but

that's considered a secondary

transaction which is an exempt

transaction ction from the purview of

the SEC like the SEC isn't in the alley

policing you going up up up up you need

to follow the rules that's really

important because coinbase is making

this argument that whoa whoa whoa whoa

first of all first of all even even if

it is a security we're just dealing in

secondary transactions because different

people's wallets are connecting and

different people's wallets connecting

are not us representing an issuer like

like SpaceX and helping them sell shares

different people's connecting wallets

connecting has has nothing to do with us

and the issuer that's one of the

arguments that coinbase makes the second

argument that coinbase makes is that the

hoe test and all of this is summarized

on ec.com by the way go to ea.com it's

totally free I post a lot of my research

there and and commentary on there but

anyway uh it's my website I write it

okay so anyway uh and again it's totally

free it's going to be free forever so

the hoe test has a lot to do with

investment contracts now how do we know

that ah okay well that's really simple

so all you have to do is Google SEC

verse hoe and uh hoe Co the Howie

company okay and when you Google that

you could find the actual case law this

is an old 1946 case law and what's

really important in this is the phrase

investment contract upon the facts of

the case an offering of units in a

Citrus Grove develop velopment coupled

with a contract for cultivating that

Grove was an investment contract within

the meaning of the

1933 Securities act ah okay interesting

so that is where coinbase's strongest

argument comes from wait a second even

if something is an investment of money

into a common Enterprise with the

expectation of profit to be arrive from

the benefit of others wait a second is

there a stapled investment contract to

that for example when you buy a share of

Apple you have your name put on a uh uh

a cap table somewhere a transfer agent

says Okay Kevin Smith or whatever you

now own these shares of apple and as a

result of that you have potentially the

right to vote the right to dividends the

right in liquidation of the company in

the event the company liquidates you

have the right to residual assets you

have the right to sue you have a lot of

rights that come with your ownership in

that company coinbase makes the argument

that the tokens that coinbase threw in

their lawsuit which I have a screenshot

by the way of the tokens that they threw

in their lawsuit I believe these are the

12 right here cardono CHL uh chz rather

salana axi Infinity filecoin Internet

Community uh computer I'm reading this

too fast flow near protocol polygon

Voyager token sandbox Dash anyway all

this is at ec.com anyway point is

they're arguing that none of those come

with an investment contract now the SEC

makes the argument that wait a sec wait

a sec there is a reasonable expectation

of profit from investing in these uh

coins or tokens or whatever you want to

call them right uh and and of course

that depends on the way they're

structured whether on you know on

ethereum and so we don't have to get

into all that uh but the point is uh uh

the judge gave a really big tell right

here here's a really big tell I want you

to see this one the judge says so if you

find these are unregistered Securities

wouldn't the asset purchasers have the

right of

recision and then the SEC goes yeah

that's correct okay that would imply

that there's an investment contract the

judge trapped the SEC there the judge

literally smacked them upside the face

with that one she walked them into a

landmine on that question she's like hey

you know if these are indeed Securities

just what like like think about I want

you to think about this okay so I'm the

judge hey uh SEC so so these are

securities right you think these are

securities yeah yeah yeah we think

they're Securities okay so in that case

there would be a right of recision right

because Securities have a right of

recision like the right to cancel your

investment due to fraud or whatever

right yes yes that's correct uh okay

that's what I thought and then the judge

is processing in her head but these

tokens don't have a right of

recision see the the judge totally

walked them into a land mine on that one

and they bit that one hookline and

sinker so that was a big deal uh

remember a recision is a cancellation of

the contract again I even wrote that on

eak this is a big deal so the judge

walked them into a landmine on that one

uh what else do we have so the SEC

argues well it's part of an Enterprise

they've argued this over and over again

uh and uh and and they basically say but

look the sec's argument is come on it's

a token there are a group of developers

and when the developers with their

biographies and their skill sets when

they make the metaverse better or they

make the underlying applications better

when they make the ecosystem better then

when that ecosystem gets better the

value of the token goes up okay that may

be true but does that bestow contract

rights that's the big burn on the SEC

now the SEC should have in their summary

arguments which I wrote on ec.com I

wrote the secc should have made a very

very clear link between a token and the

expectation of profit in a project from

developers by linking the benefits with

the asset they needed to sh show that uh

in fact I go as far as saying the SEC

should make a very clear argument that

if you own you know 67 uh% of a token

ecosystem maybe that gives you some

control in a certain token ecosystem

right maybe that lets you manipulate it

or or change the voting or or whatever

depending on which we're talking about

the SEC punted on that they did not make

that argument that was probably their

best argument they didn't even make the

their best argument okay no problem so

what happened when the judge was talking

to coinbase well again they made it very

clear that there is no stapled contract

to a token that says you have the right

to liquidation you have the right to

dividends you have the right to anything

beyond your speculative interest in that

token and the judge frequently said so

it's kind of like if my friend owns a

football jersey and I want to buy that

fantasy football team because my friend

owns that football jersey am I investing

in a security and the judge is basically

rhetorically arguing just because I put

money into something with the

expectation of making money does not

mean it's a security because if that

were true I wouldn't invest in trading

cards I wouldn't invest in Beanie Babies

basically all collectibles would be

Securities all Commodities would be

Securities and the judge literally says

well we're getting way too broad here

about what a security potential

could be so now uh coinbase then goes

you know goes on to say look like all we

do is provide services yeah we're an

exchange yeah we're a broker dealer and

yeah we provide wallet services but

wallet services are just like an

internet browser like when you go on

Google Chrome and then you go interact

with Chase are we somehow responsible

for what you do with Chase because we

helped you get on the internet you know

is Google Chrome responsible for what

you do on the internet no so so why

would coinbase be responsible for

helping you have a way to connect that

they're an IT service is what coin bases

argument that seemed to be a strong

argument that somewhat resonated uh with

the judge uh now the other thing that I

thought was really interesting is uh the

judge responds when uh so coinbase says

so you know we thought the SEC would

present a scheme of contracts claim ah

this is a big one a a scheme of contract

claim suggests that there is an

implication that there is a

contract even after coinbase said hey

coinbase we thought you or uh SEC we

even after coinbase said that uh that

the SEC might present that argument the

SEC did not pick up that argument by the

way and what was really interesting is

it kind of went like this coinbase goes

we thought the SEC would present a

scheme of contracts claim again the

implication that there's an investment

contract and the judge goes you weren't

presented that and coinbase goes exactly

it's almost like the judge was like

bantering with them that came at roughly

the same time that coinbase is like we

have slides as well can we show you our

slides and the judge literally says I'd

love to see your slides I'm sure

somebody stayed up through the night

making those slides she was full serious

she's she's like bro how much coinbase

stock do you own lady like it was so

obvious the whole time she was totally

like handing this case to coinbase now

coinbase did f up once they had one

really big F up they covered for it but

they had a big F up okay the coinbase F

up was simple so uh the judge goes uh

you know hey so um when when you invest

in this contract uh or or rather this

token do you know what happens if salana

let's say goes Belly Up what happens if

salana goes bankrupt and I invested in

salana uh would I have any rights to sue

the developers of salana and then

coinbase replies and says well the

purchaser of salana would have a claim

in fraud and no that was the wrong

answer because the judge is like wait

but you just said there's no contract so

how could there be a fraud claim the

judge literally handed them an easy win

right there and they totally fumbled on

that and then the coinbase guy retracts

and he's like oh oh oh I I'm sorry I

mean uh uh no no it's not fraud it's Tor

uh that's different uh yeah you're right

there's no contract and they kind of got

back on the same page but it was really

interesting even through that total

disaster the judge was still trying to

like help them along so I think the

Judge kind of went into today with a

decision already made and they were

looking for a stronger case from the SEC

now I did think it was weird that the

judge is literally like hey I've got

Senators telling me don't get involved

in coinbase like stay out of this and

the judge is like so maybe I should just

stay in my lane and I'm like wait a

second you're literally saying that

you're being politically what okay

whatever maybe she's just being

transparent whatever but then there was

yet another argument okay and this was

an interesting one which was crazy

because this is literally what the SEC

used in their closing argument I'm like

bro why would you use your weakest claim

in your closing argument SEC no like I

again I'm trying to look at this from a

neutral point of view out of interest

for like how law works and judges and

and the judicial J judicial system works

so the weakest argument the SEC had is

literally what I'm about to say which

they ended up using in their summary

argument the SEC argued that coinbase is

an unregistered exchange and that the

SEC has never approved a broker deal ER

also operating in exchange so think

about that for a moment there's the New

York Stock Exchange and then there's

Robin Hood they're separate right

coinbase is both coinbase is both the

New York Stock Exchange and Robin Hood

and the secc is like you know there's a

conflict of interest between uh the

broker dealer also being an exchange

we've never approved one of those before

and you know what the judge says is that

against the law and the SEC response

well it's not illegal per se we've just

never approved an exchange that was also

a broker

dealer

bro why would you use that argument in

your closing

argument that was your worst

argument I mean whatever like it's it's

good for the crypto Community I'm just

saying like I was shocked uh by the SEC

there so uh the SEC also and this was a

really damning point which is amazing

for the crypto Community but this was a

damning one okay the SEC goes so uh or

or the judge goes well you know I'm sure

everybody buys tokens because they hope

they appreciate in value but that's why

people buy trading cards or beanie

babies as well uh are there tokens

without an ecosystem and the SEC goes

yes Bitcoin the judge says is that

because it's a replacement for Fiat no

there's no ecosystem behind it if no one

is inducing any anything you can't be

buying a security so to speak and the

judge says uh uh basically that like hey

so is is Bitcoin a a security and the

SEC is like well no okay now what what

what did coinbase do coinbase literally

took that admission in this case and at

the end says hey um you know Bitcoin

actually isn't very different from all

of these other tokens you know there are

support groups for Bitcoin just like

there are support groups for cardano

what's the difference and so coinbase

went like to the next level here and

they're like hey you know come to think

about how much we're winning this case

um what really is the difference between

Bitcoin and all these other coins you

know after all the SEC did say Bitcoin

isn't a a security so uh maybe that's

the argument like oh my gosh it's just

like putting the nails in the coffin so

anyway I like that argument might not

hold but it doesn't need to because the

weakest well let's put it this way the

strongest case that the SEC could have

put forward which would have been the

connection that tokens are like a stock

the SEC did not make instead coinbase

had the benefit of making the strongest

argument which is even if you're making

an investment with the expectation of

making a profit there is no contract and

the hoe test which is what this all

relates to has to do with the fact that

there is an expect that there is an

investment contract now I will say the

judge did say and this was a potential

weak point she said there could be a

void in coinbase's argument the void in

coinbase's argument is that wait a

minute does Howie actually only apply to

investment contracts because remember

and this is something else that could be

debated okay this could be debated

remember there are four components of

the Howe test an investment of money in

a common Enterprise with the expectation

of profit to be derived from the benefit

of others notice that none of those four

things say investment contract but all

of those four components came from the

hoe case which defines that a security

is any investment contract so it's kind

of like can you take one part of the

Howie case without taking the investment

uh contract part that could be debated

so if the judge and and I'll give you my

opinion on this if the judge wanted to

side with the SEC they could say Hoy

test doesn't say investment contract

therefore SEC wins that's that's all the

that's all the judge would have to do

the hoe test nowhere says anything about

their needing to be an investment

contract it's a security but the problem

with this which is what the judge uh uh

indicat at is well wait a minute what if

I invest in Beanie Babies I expect to

make money I expect other people are

going to be interested in Beanie Babies

which means I might benefit from the

efforts of others you know maybe other

people are going to burn BB Beanie

Babies there'll be less beanie babies

out kind of like people burn tokens

there'll be less Beanie Babies

outstanding and then the value of my

Beanie Baby will go up right and then

you could argue well is that a common

Enterprise like you could make all of

these different arguments right but

the judge is really concerned that if

she sides with the SEC she encompasses

Commodities and beanie babies and

trading cards all on the purview of a

security when the reality that the judge

seems to point out is coinbase is a like

providing facilitating Services coinbase

is providing IT services coinbase is

primarily operating in secondary

transactions which have no jurisdiction

with the SEC they're exempt transaction

actions and you can't look at the Howe

test with just these four components you

must also consider the investment

contract aspect and since there is no

investment contract in relation to these

tokens that people are are trading then

these tokens can't be a security the

reason for that is this idea that well

like who gets the contract can can a

blockchain address be a party to a

contract

I'm not talking smart contracts here I'm

talking about legal contract in law well

a wallet address isn't a legal entity

and it's not a person it's an address

you know it's like a po. box it's like

saying my po. box has the right to sue

somebody well no it doesn't so do those

tokens which have ownership and random

wallet addresses like who's the

individual that actually owns those

wallet addresses who would get

contractual rights so in other words you

can't really have a contract if you

don't know who the other person is but

by virtue of the blockchain most of the

time you have no freaking idea who the

other person is so if you don't know who

the other person is how could you have a

contract with the other person which

means there can't be an investment

contract and if there can't be an

investment contract then the Howie test

can't qualify which means these are not

Securities

so now I'm going to give my bottom line

opinion on this my bottom line opinion

on all of this I think with a 90% degree

of certainty coinbase wins this I went

into this thinking nearly the opposite

I've been convinced after listening to

this for four and a half

hours the SEC did not make a very

convincing argument the judge seemed

married to coinbase and quite frankly

the arguments over at coinbase despite

their stumbles one stumble uh were

strong I think they made a very very

good point so that's my opinion uh so uh

you know don't sue me bro I'm literally

a dude with a LEGO cup and the skull uh

LEGO cup over here who wants to drink

coffee and go to the bathroom because

it's been like 5 hours so if you like

this kind of content make sure to

subscribe to the channel check out

eac.edu whenever I get around to dealing

with the beige

book thank you so much for watching

really appreciate yall and we'll all see

you in the next one goodbye and good

luck why not advertise these things that

you told us here I feel like nobody else

knows about this we'll we'll try a

little advertising and see how it goes

congratulations man you have done so

much people love you people look up to

you Kevin PA there financial analyst and

YouTuber meet Kevin always great to get

your

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