Jun. 20, 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 20, 2023 To Whom It May Concern: After further discussion of the implications of the Hinman Emails and the Commission’s bad-faith Rulemaking and unethical (or even treasonous) legal malpractice, I submit this further comment to elaborate on the problem caused when the Commission’s staff lawyers intentionally mis-represent Supreme Court decisions for their own personal financial gain from employment with the Commission and later employment in private practice to give themselves and the Commission a “winning” track record in litigation. Let us imagine, as SEC staff lawyers do, that a buyer of a row of Howey orange trees in 1945 who rejected the Offer of a profit-generating service contract was NOT a buyer of any security. (This is NOT what the Howey Court actually ruled, and it is NOT what the Hinman Speech asserted, but shockingly it is what SEC lawyers have decided to narrate in bad faith, behind-the-scenes, in formulating their litigation strategy to make these matters ambiguous and confusing and malleable on purpose for strategic advantage in future litigation, something which the Hinman Emails have revealed for the first time by showing us previously-unknown confidential attorney work-product and legal analysis kept secret until now by the Commission). Quoting from the Hinman Speech: https://www.sec.gov/news/speech/speech-hinman-061418 “So the purported real estate purchase was found to be an investment contract – an investment in orange groves was in these circumstances an investment in a security.” “Returning to the ICOs I am seeing, strictly speaking, the token – or coin or whatever the digital information packet is called – all by itself is not a security, just as the orange groves in Howey were not. Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers.” As a matter of fact, the Howey Court unambiguously said that Howey could NOT make Offers of their land parcels, as land-only transactions, in inter-state commerce, without prior registration of the investment security, not even if they modified their sales process to separate in time the land sale to each investor and Howey’s subsequent non-contemporaneous offer of a profit-sharing service contract, because the inevitability of the new land owner needing to sign a service contract with SOMEBODY made the land sale and the (eventual, and also recurring) Offer of profit-sharing through a service contract inseparable in economic reality from the orange trees themselves. Howey was even granted a recorded leasehold right to occupy the land after sale, when the new owner signed the service contract, so the Howey common enterprise would literally "run with the land" in the normal real property legal meaning of this phrase for any investor who did rely on Howey to service the orange trees and distribute the resulting profit share. Every buyer inspected the land and the trees before buying, and knew that the small parcels they purchased were physically and economically inseparable from the larger Howey estate. The individual rows of Howey orange TREES offered for sale to investors, those WERE deemed securities by the Supreme Court, for the reasons Hinman explained when summarizing the reasoning of the Supreme Court: because of economic reality and how the trees were being offered and sold. Entire groves comprised of thousands of trees spread across thousands of acres are NOT securities. A buyer of real estate who buys the entire Howey estate is not buying an investment contract, the Howey common enterprise is ceasing to exist in such a land sale where Howey sells all of its orange trees, the entire set of Howey orange groves. The sale of any single orange grove likewise, as land-only, would not be a security because the buyer would be buying a large enough number of trees located physically in a fully-divided parcel of land substantial enough in size that the buyer would be able to make ordinary arrangements for easements of access, water rights and other considerations normal to the purchase of a stand-alone orange grove. The Howey Court made clear, that if not Howey then somebody else would need to service the orange trees, harvest and bring to market the fruit and share the proceeds with the land owner, it being immaterial for purposes of the application of federal securities law whether the owner of the trees bearing Howey estate oranges cultivated and brought the oranges to market themselves, with their own two hands, or whether the investor signed a different service contract with a different third-party. In either case, Howey would still attempt to Offer the originally-envisioned profit-sharing contract which Howey preferred to "run with the land" for the term of each leaseback agreement, which, together with a Howey estate parcel of land with mature fruit trees among thousands of acres of other mature fruit trees all being cared for diligently by the Howey common enterprise with its multitude of shareholders (each of whom were required to be owners of some Howey Trees in order to qualify for their share of the profit from the common enterprise), constituted the essential ingredients of an “investment contract” based on the facts and circumstances of the Howey case, given the underlying physical reality of the situation for as long as there was still a Howey common enterprise operating as a going concern inseparable from the Howey estate’s many, many rows of mature orange trees. Back to the subject of my comment letter: let us say that the individual rows of orange trees offered to investors WERE NOT SECURITIES under the Howey Court ruling unless the investors also signed a Howey service and profit-sharing contract. The implications of this invalid narrative are catastrophic to the SEC, potentially overturning decades of previously-decided Howey cases which may now need to be re-litigated on appeal to correct the intentional abuse of power and abuse of authority that this one astonishing act of bad-faith lawyering has potentially revealed. There could be serious implications for the Commission, and a Congressional inquiry would be warranted, if it turns out the SEC has in fact orchestrated on purpose the essential ingredients of such a corrupt scheme intentionally violating the constitutional rights of all Americans. If investors who did NOT sign a service contract did NOT buy a security, then these buyers who choose to buy only a row of trees as an investment COULD advertise their parcel of land for sale in inter-state commerce, since they own only non-security real property and the federal securities laws do NOT prohibit them from offering their land for sale to another investor without prior registration. Let us call this the “secondary market” for the mature Howey Trees. Trading of commodity Howey Trees in the secondary market might become active. One might even imagine CFTC-compliant futures contracts deriving their value from the spot price of the underlying commodity Howey Trees. While the Howey common enterprise continues to exist and operate and Offer Howey Trees as investment contract securities to investors (if Howey DID decide to register with the Commission as required following the Supreme Court decision in 1946) there would also be this additional market active which we might expect to be tokenized in the future, as all commodity markets obviously will be. At any time following the expiration of a Howey service contract, an owner of investment contract security Howey Trees could resell commodity Howey Trees, tokenized through a crypto exchange, or untokenized if they choose to sell through the spot market, a market which exists as an inter-state market which is NOT subject to federal securities law. In the alternative, the investors could, if Howey DID decide to register with the Commission, offer to resell their investment contract security through a securities exchange (if there is a listing somewhere) or they could resell with the help of a securities broker who would help find a buyer or match the offer to sell with an offer to buy the way that securities brokers commonly do and securities exchanges always do. The problem is, the commodity Howey Trees must be cared for, cultivated, watered, fertilized, protected from extreme cold when winter ice threatens to destroy the economic value of the trees, and, to protect the value of the neighboring investment contract security Howey Trees it would be necessary for SOMEBODY to care for the trees, and also to harvest the fruit from the commodity Howey Trees and remove the fruit from the grove so there are not millions of rotting oranges attracting insects and growing fungus which might be hazardous and could otherwise decimate the entire Howey estate. Neglecting the trees in order to comply with federal securities law would be ridiculous and contrary reality, a kind of violation of natural law, deferring to the authority of an artifice of political power which arbitrarily decided nature could not thrive and produce trees and fruit unless a registration statement had first been filed with a political Commission. If the commodity Howey Trees are not cared for properly then they will eventually cease to be Howey Trees. Only so long as there continue to be mature fruiting orange trees on productive land can the Howey Trees as commodities be sold in the Howey Tree spot market, or, alternatively, packaged together with an Offering of a service contract as (registered or unregistered) investment contract security Howey Trees. At the end of their natural life span the Howey Trees would also need to be re-planted, and one might presume this life cycle of commodity Howey Trees would be worked into the structure of the commodities spot market somehow so that like-kind Howey Trees would be fungible and hold different tiers of secondary market value, exactly as Howey itself did when pricing sales of its investment contract securities to investors. Continuing with analysis of the logical consequences of the Commission’s belief that Howey Trees, when sold as trees without a service contract, are NOT securities, let’s now attempt to figure out how ANYONE might still have the right to care for the trees under contract without prior registration as a security. Asserting that the owner of commodity Howey Trees purchased from Howey without a service contract, or acquired in the commodity Howey Tree spot secondary market, could NOT lawfully sign a service contract with Howey without causing a violation of securities law would be patently offensive and absurd, it would make a mockery of economic reality and the law, it would constitute an outrageous and untenable interference in the protected rights of the land owners and of Howey as an enterprise. Yet, if the Howey Trees together with a service contract constitute a security, then the owner of commodity Howey Trees could NOT, as a matter of law, offer to BUY a Howey service contract in inter-state commerce any more than Howey could offer to SELL one, unless Howey DID decide to register with the Commission to make such Offers lawful. A third-party service provider who might agree to do the work for the owner of commodity Howey Trees, including harvesting the oranges and bringing them to market for sale and remitting to the owner their share of the proceeds, obviously cannot Offer such a service contract to the owner of the commodity Howey Trees, since Howey was told they could not do so themselves. The Commission’s staff lawyers imply, with their false narrative, that because the Howey Trees themselves are NOT securities there would be no problem with such an arrangement, but that’s irrational and incoherent, departing from the actual ruling by the Supreme Court. To assert that a third-party service provider CAN BE hired, but Howey CANNOT BE, in a separate service contract signing after the land owner has acquired commodity real estate property ownership rights which qualify them for profit-sharing, violates the basic legal principle of judicial estoppel. A decision that deems one profit-sharing service contract associated with Howey Trees to be a security but deems another profit-sharing service contract to be NOT a security would permit the SEC to contradict its previous declarations about why it asserts that its authorities granted by Congress extend to certain investment schemes, and would permit contradictory declarations as to the meaning of the Commission’s Rules and Regulations. Judicial estoppel prohibits the Commission from doing this. Period. Full stop. Shifting the sands of regulatory interpretation under the feet of the people is a fraud on the court. This is precisely the logical outcome of asserting that the Howey Trees are NOT securities. The SEC lawyers are happy to engage in fraudulent deceptions as long as they are cloaked in the artifice of political lawyering. Administrative Law apparently is designed as a game that the government employees “win” by amplifying the power of their administrative agencies using any means necessary, the “winner” enlarging the boundaries of their “territory” like states arguing over lobster fishing jurisdictions. See: https://supreme.justia.com/cases/federal/us/532/742/ Substituting a different service provider for Howey, and then reselling the Howey Trees to a new owner without first filing a registration statement would cause the owner of commodity Howey Trees to engage in exactly the same behavior as the Howey Court ruled was impermissible for Howey. Reselling the commodity Howey Trees without a service contract already arranged The District Court in the Howey case ruled that the Howey Trees were sold independent of the service contract and therefore the transactions were not securities transactions. The Supreme Court explicitly overturned the District Court in finding that because of the CORRECT analysis of the facts and circumstances in the case, the economic reality was that Howey as a common enterprise was standing by to care for the Howey Trees and bring the oranges to market for the economic benefit of the investor, making it irrelevant whether the investor signed that contract with Howey or with a different third-party service provider. In summary, Howey Trees were found by the Howey Court to be securities until such time as the prospect of earning passive profit from the efforts of somebody else’s common enterprise could no longer be seen as the underlying economic reality of the investment made by any buyer, including a buyer in a resale that is not contemporaneous with the Offer or acceptance of a service contract. Although the Court did not articulate this hypothetical, one of the ways in which this might happen would be for a buyer to purchase entire groves from Howey instead of just rows of trees, and compete with Howey using the buyer’s own capital, personnel and equipment. Another hypothetical might be for Howey to violate the terms of its contracts with its investors, abandoning all of the Howey Trees and going out of business leaving each owner to fend for themselves and pool their resources with other Howey Tree owners to bring into existence new management and a new common enterprise. However, the new owners would put themselves in the same position as Howey if they were to attempt to resell their Howey Trees in inter-state commerce to other investors AFTER establishing a new scheme of management for the business activity that Howey had previously operated for-profit. It is an inescapable logical and legal conclusion from CORRECT analysis of the full Howey Court decision, including the case history in the lower courts and the last-minute amendment to the Final opinion of the court by Justice Murphy, that the Howey Court focused its decision wholly on the existence of the Howey common enterprise which was being financed through investment capital raised from the general public by causing rows of Howey Trees to be imbued with rights to sign a contract for a “share” of equity-like ownership, forming the essential ingredients of a profit-sharing securities scheme for the purposes of federal securities law. See: https://www.sechistorical.org/collection/papers/1940/1946_0517_HoweySupremeT.pdf Any substitute service provider contracted by an owner of Howey Trees might NOT be required to register their service contract with the SEC before agreeing to provide service and distribute proceeds to the owner of the Howey Trees that they service, if they are contacted by the new owner without advertising their service contract Offering through inter-state commerce, but judicial estoppel clearly prevents the SEC from holding the position that the Howey Trees themselves are NOT securities, when Howey still operates its common enterprise in the rows adjacent to those being serviced by the outside service provider. The Test for “NOT-a-security” in this situation seems to require Howey to go out of business and for some different management scheme to replace the Howey scheme such that the same facts and circumstances do not arise again when owners of trees attempt to Offer them for sale in inter-state commerce. The entire former Howey estate could clearly be marketed for sale, and entire groves could be, as Hinman seems to indicate in his speech, but it seems clear to me that the individual rows of trees would be deemed by the Supreme Court to be securities if Offered to investors who are induced to invest because their rows of trees are inseparable from the larger going concern of somebody else’s successful business operation. I believe strongly the SEC has a duty to correct its defective Guidance on the subject of Howey, and to re-open every one of its previous Howey cases for re-adjudication, because its Commissioners and certain staff have sworn oaths that they would be violating otherwise by acting in bad faith and causing a fraud on the courts with the deceptive scheme the Commission has formulated over decades by asserting conflicting declarations about the Supreme Court decision in Howey in particular. And, we are going to need this cleared up in order to have any chance of making any sense out of “tokenized Howey Trees” in a DeFi and crypto world. https://en.wikipedia.org/wiki/Token_money It also appears necessary at this time for the SEC to acknowledge, formally, as part of the present Rulemaking, or promptly thereafter in published Guidance that is approved by a vote of the Commissioners, that Howey land including Howey service contracts and leaseback rights that "run with the land" in Florida would NOT ever have been deemed to be securities for the purposes of the federal securities laws if the sales and marketing had conscientiously and purposefully been limited by Howey to in-state real estate sales in compliance with Florida state law rather than involving interstate commerce. Avoiding federal jurisdiction DOES permit offers and sales of business opportunities and assets which are NOT securities, even if there is a profit-sharing character to the scheme. Selling a business opportunity or providing a service that helps to produce income does NOT involve the securities laws in every circumstance. Where the essential ingredients of an "investment contract" security are lacking, and no other analysis would implicate securities law, anyone may offer and sell their business opportunities and products or services in interstate commerce without prior registration of non-securities with the Commission. This reality should be clarified by the Commission at this time, because many crypto business opportunities involving protocols, algorithms, compute services and decentralized common enterprise schemes open to the general public are NOT investment contracts and are NOT subject to federal securities regulation, despite the prospect of income or wealth creation for voluntary participants especially when the participants contribute something of substantial value and provide effort to the decentralized cryptoeconomic system. As the Commission purposefully and unilaterally expands the apparent scope of its authorities, I believe it is essential to make a binding declaration of what the Commission views to be beyond the scope of its authorities so that its duty to promote fair and orderly markets, not only for securities markets but also for the businesses engaged in marketing every other thing of value to consumers, customers and business partners who collectively make use of capital to grow and create jobs and form new capital on a larger scale over time: without growth of fundamental economic activity there will be nobody to invest in and nobody to invest with and nobody to raise capital from. The SEC should not be interfering with economic growth, and the Commission should never position itself as a gatekeeper for any natural process to occur, something as basic to civilization as people tending to crops growing food. Requiring prior securities registration before a farmer can sign a contract with a service provider to cultivate and harvest their crops, merely because the farmer might have acquired their farmland in a manner that made use of interstate commerce and included rejecting the offer of a different service provider, because the farmer might not remain actively involved in the effort and management of the cultivation and harvesting after the contract with the service provider is signed, or because the farmer might offer their farmland for sale through a nationwide crypto exchange, or tokenize the farm's commodity assets, is ONLY something that happens under federal securities law and ONLY because of judicial estoppel as a result of the SEC's decades of political posturing and unethical lawyering. When the SEC makes mistakes, as it has for decades with Howey and its progeny, the CORRECT thing to do, to avoid perpetrating a fraud on the courts, is to correct the mistake. Finally, the Commission is no doubt aware of the strong message sent to it by the Supreme Court on June 1, 2023 in the case of Slack v. Pirani in which the Justices UNANIMOUSLY rejected the idea that it would be a good thing to interpret securities law in favor of expanding the scope of authority of the SEC and of federal courts to litigate securities claims from a larger number and more classes of plaintiffs in order to appear to increase investor protections. The Slack Court said: "Finally, Mr. Pirani argues from policy and purpose. Adopting a broader reading of 'such security' would, he says, expand liability for falsehoods and misleading omissions and thus better accomplish the purpose of the 1933 Act. We cannot endorse this line of reasoning. ... As we have seen, the 1933 Act is 'limited in scope.' Its main liability provision imposes strict liability on issuers for material falsehoods or misleading omissions in the registration statement. Meanwhile, the 1934 Act requires ongoing disclosures for publicly traded companies and its main liability provision allows suits involving any sale of a security but only on proof of scienter. Given this design, it seems equally possible that Congress sought a balanced liability regime that allows a narrow class of claims to proceed on lesser proof but requires a higher standard of proof to sustain a broader set of claims. Naturally, Congress remains free to revise the securities laws at any time, whether to address the rise of direct list- ings or any other development. Our only function lies in discerning and applying the law as we find it." https://www.supremecourt.gov/opinions/22pdf/22-200_097c.pdf Thank you for your prompt attention to this important matter. Regards, Jason Coombs ceo@forensics.org 831-241-4900