Jun. 18, 2023
RE: File No. S7-02-22 See: https://www.sec.gov/comments/s7-02-22/s70222.htm RE: SEC Reopens Comment Period for Proposed Amendments to Exchange Act Rule 3b-16 and Provides Supplemental Information See: https://www.sec.gov/news/press-release/2023-77 See Also: https://www.federalregister.gov/documents/2023/05/05/2023-08544/supplemental-information-and-reopening-of-comment-period-for-amendments-regarding-the-definition-of See Also Also: https://www.sec.gov/files/34-97309-fact-sheet.pdf See Also Also Also: https://www.govinfo.gov/content/pkg/FR-2023-05-05/pdf/2023-08544.pdf June 18, 2023 To Whom It May Concern: The Hinman Emails raise very important points for the Commission to consider, and to reconsider, before issuing a Final Rule regarding the definition of "Exchange" and your silly attempt to capture DeFi and crypto decentralized exchanges, smart contracts, blockchains, and other peer-to-peer crypto asset platforms under the authority granted to the SEC by Congress pursuant to the federal securities laws. Your new Rule will empower you to litigate endlessly against John Doe and Jane Doe for publishing code and making software available to the public, and you will obviously be asserting federal jurisdiction for regulation of financial relationships of every possible kind to the fullest extent possible under the Commission's strategic legal theory about the scope of its authority. This situation is outrageous and unsustainable. Your actions are criminally-wrongful, they violate the oath to support and defend the Constitution which the Commissioners and certain others at the SEC are required to swear as a condition of your employment. See: https://www.coindesk.com/policy/2023/06/13/hinman-emails-reveal-2018-speech-on-ether-drew-input-from-multiple-sec-officials/ A factually-correct understanding of the Supreme Court decision in Howey is urgently required among your staff lawyers, and, after reconsidering what appears to be a systemic mistake of comprehension by your staff over decades, I believe you MUST now present the Commissioners with a legal brief outlining the Commission's many mistakes regarding Howey analysis. To not do so in light of the Hinman Emails and the present crypto-related, DeFi-targeting proposed Rule, would deprive the Commissioners of the information they need to be capable of upholding their oath of office. You are grossly failing to follow the law, and absurdly failing to comprehend what the Howey Test actually says. It is a mystery why defense lawyers working opposite you in civil litigation have never pointed out your many mistakes, historically. But, incompetency of securities litigation defense counsel is a different comment letter. Please fix this, because you are creating a situation in which the Commission is factually-wrong in 100% of its Howey cases. You abandoned the "led to expect" requirement of Howey for strategic reasons, apparently some time after the ruling in United Housing Foundation, Inc. v. Forman in 1975, after which point the Commission's litigation tactic for Howey cases revolved around intentionally mis-stating the Howey Test by excluding the "led to expect" element, switching instead to a "Forman Test" construction of Howey in which you replaced "led to expect" with "reasonable expectation" despite the fact that this is NOT what the Forman Court had ruled. See: https://supreme.justia.com/cases/federal/us/421/837/ The Forman Court ruled that the quality and character of the potential profit must be considered by the Commission and by the courts when would-be plaintiffs attempt to bring securities law causes of action. You may recall that the SEC submitted an Amicus Brief to the Forman Court urging the court to uphold the applicability of the federal securities laws to the United Housing Foundation's "Riverbay stock" shares despite the facts and circumstances of the case which strongly leaned away from securities law transactions and clearly implicated housing leasehold rights as pure "utility" value with no promise of substantial profit to the lease rent-paying apartment complex residents. See: https://www.sechistorical.org/collection/oral-histories/20110223_Gonson_Paul_T.pdf See: https://www.sechistorical.org/collection/programs/Transcript_2007_0417_FC.pdf See page 33 of the Supreme Court transcript in Forman (1975) for testimony by Paul Gonson on behalf of the Securities and Exchange Commission, as Amicus Curiae: https://www.supremecourt.gov/pdfs/transcripts/1974/74-157_74-647_04-22-1975.pdf The Forman Court ruled that inconsequential amounts of profit do not cause something like a unit of housing in a shared housing complex to become a security because nobody can form a reasonable expectation of substantial profit from the operation of the shared housing facility by a third-party manager, that no reasonable expectation of profit exists where an apartment leasehold right buyer makes their purchase for consumption of the housing, "investing" solely for the right to pay the lease rent, for its "utility" to the owner as a place to live, and where the "investor" is required to tender ownership of the "shares" of leasehold housing "Riverbay stock" back to the co-op that manages the shared housing facility when an owner chooses to move out of Co-op City, The Forman Court ruled AGAINST the position of the SEC Amicus, and rejected the SEC narrative that small amounts of rent reduction promised from management of the shared housing facility or from reduction over time of the balance of a pool of mortgage-backed security capital that lease rent payments were being used to repay (if the issuer managed its indebtedness with skill and honest effort) constituted investment contract-style promises inducing investors to invest, ruling instead that such schemes could not possibly involve the jurisdiction of the federal securities laws because no "reasonable expectation" of substantial passive profit could be formulated in the mind of the reasonable buyer. SEC lawyers apparently decided to spin this Forman litigation "loss" into a "win" by adopted the deceptively-worded re-formulation of the Howey Test which the Commission employs today to advance the notion of "reasonable expectation" but, with almost nefarious deceptive and fraudulent intent, the SEC twisted the "reasonable expectation" concept from Forman into its exact opposite meaning. The Commission appears to have artificially and unilaterally EXPANDED the number of cases in which federal securities law will appear to apply, instead of REDUCING the number of cases as the Forman Court actually instructed the Commission and the federal courts to do. Everyone at the SEC who was involved in crafting this clever scheme in bad faith against the interests of the American people and against the spirit of the protection of our Constitutional Rights has long since retired from the practice of securities law. However, I'm certain there must still be some retired lawyers who know what they did and who feel badly about it because they KNEW it was wrongful. Perhaps the Commission should contact all of those people, since you know who they were, and ask them if they would like to set the record straight as part of this Rulemaking process, since you intend to dramatically expand the number of cases in which you plan to assert Howey and Forman against defendants going forward after your Final Rule becomes effective. Please also review the many mistakes made by your staff lawyer, Laura Jarsulic, who articulated factually-incorrect legal opinions derived from what she imagined the Howey Court had decided, when what she SHOULD have done, what each of you are SUPPOSED TO DO, is be factually-correct about Supreme Court decisions and carefully track the implications and give us Guidance about the proper interpretation of those decisions. What we see the Commission doing, instead, through its staff attorneys, is deviously and nefariously and in bad-faith attempt to position for maximum legal advantage in all future court cases where, apparently, you all care more about winning than you do about being factually-accurate and achieving the balance of regulation and promotion which Congress expressly intended for federal securities law to achieve and entrusted your independent political Commission with authority to oversee. I published a detailed thread on this subject, which I encourage you to read. See: https://twitter.com/jasoncoombsceo/status/1670528353680658432 SEC lawyer Laura Jarsulic was mistaken, factually, in her comments on Hinman speech. @SECGov The Howey Court did NOT say that purchasers who only bought trees did not buy securities, it said the opposite: even as land the Howey parcels were unmarketable without registration. 1/4 See: https://twitter.com/jasoncoombsceo/status/1670529709913026561 Howey Court said: Such tracts gain utility as citrus groves only when cultivated and developed as component parts of a larger area. A common enterprise managed by respondents or third parties with adequate personnel and equipment is therefore essential 2/4 See: https://twitter.com/jasoncoombsceo/status/1670530619741470722 Howey: This conclusion is unaffected by the fact that some purchasers choose not to accept the full offer of an investment contract by declining to enter into a service contract with the respondents. The Securities Act prohibits the offer, as well as the sale, of unregistered 3/4 See: https://twitter.com/jasoncoombsceo/status/1670531575338135552 … nonexempt securities. Hence, it is enough that the respondents merely offer the essential ingredients of an investment contract.” Howey Court ruled buyers who bought only Howey land would certainly offer it for sale later as an investment contract. 4/4 See: https://storage.courtlistener.com/recap/gov.uscourts.nysd.551082/gov.uscourts.nysd.551082.830.46.pdf See: https://twitter.com/jasoncoombsceo/status/1670534423241199616 The Howey Court ruled the specific orange groves ? being offered for sale through inter-state commerce by Howey were designed to be operated as a common enterprise by SOME third party, other than the investment contract buyer. Howey Court ALREADY SAW “decentralization” in 1946. See: https://twitter.com/jasoncoombsceo/status/1670536101336055808 Applying Howey to crypto “investment contract analysis” @SECGov Guidance about this is flawed, SEC staff lawyers are confused. Each crypto “decentralized common enterprise” MUST design its assets so some “third-party” never does work for HODLers’ profit. Screenshots of the relevant portions of the Hinman Emails are included in my thread, along with highlighted excerpts of the Howey Court decision. Please bring this matter to the attention of the Commissioners, as the facts as I have highlighted them here appear to definitively and objectively undermine the Commission's plan to expand the apparent scope of its authorities in bad faith. The pattern and bad-faith practice of the staff attorneys surrounding Howey-related litigation since 1975 seems to pose a systemic risk to the Commission's capacity to properly oversee and administer the federal securities laws, and I do hope you will take this seriously and apply corrective measures in connection with any Final action on the present Rulemaking. Happy Father's Day, Jason Coombs ceo@forensics.org 831-241-4900