Sep. 14, 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 September 13, 2023 To Whom It May Concern: Today we saw more evidence that the SEC has completely lost the plot with its enforcement actions against crypto. Because the true intention behind the present Rulemaking in which you propose to expand your scope of authority to target more crypto platforms, developers, promoters and members or users of decentralized blockchains which the Commission claims violate federal securities law, we must look carefully at the details of your enforcement actions against crypto in the present in order to understand what you plan to do with your new, self-appointed, expanded powers in the future. In the case of Stoner Cats we see the Commission bully and harass and threaten and extort a million dollars, and other promises and concessions for your sole benefit, from a victim of your unconstitutional abuse of power. Stoner Cats could not fight back, so they are paying the "protection money" that you have criminally extorted from them in what my 14-year-old son aptly described as "comic book evil villain" style. You may as well have threatened to break Stoner Cats kneecaps with your baseball bats while telling them if they don't pay then you can't protect them from the baseball bats. Surely some of you there at the SEC are still thinking humans who have ethics and intelligence, and so you can still see what teenagers see. The Stoner Cats NFTs are obviously not securities. They are obviously not investment contracts. You have just extorted a million dollars from an honest victim of your abuse of power. That is obviously what you intend to do to everyone, everywhere, in the future, because you fail to understand peer-to-peer communications technology and you obviously have no intention of upholding the Constitution to protect investors and issuers, to protect our Constitutional rights and to prevent government intrusions and interference which Congress promised the American people during the Great Depression would never be allowed to happen as a result of the creation of new Administrative or political agencies whose purpose was purportedly to prevent another Great Depression from ever happening again. See: https://www.sechistorical.org The Commission could not and would not win in court against Stoner Cats, but they are unable to spend $200 million fighting you like Ripple or Coinbase are doing, so they settle your false allegations and you write a victory speech. In your false narrative, as a condition of allowing Stoner Cats to keep their kneecaps intact, you require them to turn over to the Commission the wallet addresses of every owner of the purported illegal contraband digital property, these criminally-fraudulent "Stoner Cats" crypto asset securities which individual users have been enjoying owning and using and trading with their friends but which you falsely allege are an illegal enterprise involving violations of law on first sale and upon resale in the secondary market. A secondary market that exists only in your imaginations, where illegal securities trading is happening, and now you have compelled the cooperation of an informant against the users, who seem to each be perpetrating crimes that the SEC intends to investigate and charge. After your informant turns over the wallet address information you require in order to further prosecute. See: https://www.sec.gov/news/press-release/2023-178 Like my son said, this is comic book evil villain nonsense. You can't look on the public blockchain yourselves to see the list of wallet addresses that own all the Stoner Cats? OMFG. This is comically bad behavior for a creature of Congress whose only enforcement authority granted by Congress in fact relates to the business of underwriters and broker-dealers and Exchanges dealing in actual securities. You were never granted authority to go after Stoner Cats in this manner, like the mob with a protection racket, and you now owe them an apology. Nowhere in the Howey Test does the language appear which the SEC staff lawyers are asserting is the Howey Test. Your false accusations of wrongdoing against issuers, crypto exchanges, developers, and end-users have no basis in fact nor in law. You should withdraw the proposed Rule and go back to law school. Here in the Order agreed to by Stoner Cats you misrepresent the Howey Test language, and you do so without explanation, as if the word "progeny" makes it all clear to everyone why it is that the SEC cannot follow the actual law but instead imagines something different that gives more law enforcement-like prosecutorial and investigative powers. Unconstitutional, corrupt powers like the ones you are wielding here require obfuscation as to their origin or else everyone would see you for what you are, and so you obfuscate instead of articulate. You bully and you extort. Because your true authority does not even empower you to contact the accused in the first instance, as they are neither underwriter nor broker, and they did not build a securities Exchange. "In doing so, it led investors to expect profits from their entrepreneurial and managerial efforts, because a successful web series could cause the resale value of the Stoner Cats NFTs to rise in the secondary market." "SC2’s public communications tied the success of the show to the value of the NFTs and thus led investors reasonably to expect to profit from the managerial and entrepreneurial efforts of SC2." "Investors in Stoner Cats NFTs had a reasonable expectation of obtaining a profit based on SC2’s managerial and entrepreneurial efforts." See: https://www.sec.gov/files/litigation/admin/2023/33-11233.pdf The actual language of the Howey Test is as follows, copied-and-pasted from the Howey Court decision: An 'investment contract' was defined by the Howey Court as "a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party." "In other words, an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise." See: https://supreme.justia.com/cases/federal/us/328/293/ Here is a short history lesson for you: In the Joiner case (1943) three years prior to Howey (1946) we see clear evidence that Joiner was acting as an intermediary and also an underwriter of Anthony's drilling business for which Joiner was raising capital by underwriting and brokering Anthony's common enterprise shares in the form of Texas oil and gas lease resales, where investors were led to expect substantial profit from the efforts of Joiner and Anthony, plus deceptive devices and fraudulent false statements were employed in high-pressure sales tactics through interstate commerce and the mails to convince investors to invest without the benefit of truthful fair and full disclosures or any possible due diligence by the arbitrary deadline fabricated by Joiner for the sales narrative. In other securities cases decided in favor of SEC enforcement action by the Supreme Court we see a pattern, both before and after 1946, where the Supreme Court correctly interprets legislative intent and the statutory language and limited Congressional investigation authority granted to the SEC by the 1934 Exchange Act and its progeny, and as a result of reading and understanding the Constitution and the law correctly SCOTUS consistently upholds SEC authority to stop underwriters and brokers and bad actors who have clearly constructed and are operating unregistered securities exchanges in violation of law (for example, Weaver Beaver whose promise to investors and to the beaver traders of the nation was to allow bid/ask trading on its secondary market, the pre-owned "used" beaver exchange where traders would sell their unwanted beavers for profit) but SCOTUS has consistently rejected the SEC argument and imposed additional limitations on SEC authorities when it comes to individual issuers whose conduct falls short of actual securities offers or sales. For example in Forman (1975) where SCOTUS clarified that federal securities law does not apply to "stock" shares offered and sold to buyers whose primary motivation for the purchase is consumptive (a place to live in the low-cost housing being constructed with the proceeds of the stock sale) even when there are potential profits being promised to investors like in Howey. The Forman Court told the SEC and the lower courts that no lawsuit should be allowed to go forward even if an investment contract does exist, such as one that satisfies the Howey Test, but where the amount or nature of potential profit from the efforts of others is not substantial compared to the other purposes of the investment for the investor or where investors who are being reasonable in their analysis of economic reality would not expect the efforts of others to provide the same kind of profit potential being offered elsewhere by other securities issuers or brokers. Specifically, the Forman Court said that a hypothetical lease rent reduction for Forman housing unit investors could not be the basis of a reasonable expectation of profit for the purposes of finding that federal securities law applied to the particular Howey-style investment contracts at issue in the case, despite the fact that investors were expressly led to expect precisely that kind of profit by the issuer when promoting and selling the housing units and the shares of "stock" the investors were told they must purchase in order to be eligible for the housing unit leases. In the Stoner Cats case there is obviously no "common enterprise" and no promise of dividends or other payments to holders, no promise of buybacks, no investment contract. The SEC would certainly have lost this case in court, so its only option was to extract a settlement from a frightened and bullied defendant who clearly did nothing wrong and did not sell securities. The Commission should take note of its decades of malpractice and mistakes, especially where Howey is concerned, and withdraw the present Rulemaking proposal. Leave crypto alone. Regards, Jason Coombs [REDACTED] [REDACTED]