John Deaton Explores SEC’s Testimony and the Ongoing ‘Regulatory Gap

Coinbase has filed a motion to dismiss the SEC’s lawsuit, which was brought in June. In the motion submitted to the U.S. District Court for the Southern District of New York on August 4th, Coinbase’s lawyers argued that the SEC violated due process, abused its discretion, and departed from its earlier interpretations of securities laws. Coinbase has also expressed concerns over the agency’s enforcement approach, arguing that it undermines the separation of powers.

Attorney John Deaton pointed out Chairman Gary Gensler’s testimony, where he acknowledged a “regulatory gap” for crypto exchanges falling between the SEC and the Commodity Futures Trading Commission (CFTC). 

This was in response to a user who wrote, “Coinbase says that when an agency acts by enforcement, rather than rulemaking, it does “violence to the separation of powers.” Last time I checked, ONLY the executive branch can bring enforcement actions, making it *the most executive* action possible.”

Deaton said that the SEC’s official response dismissed Gensler’s statement, asserting that it is irrelevant, even when given under oath before Congress. Additional evidence from the Hinman Speech emails, which were out during the Ripple case, revealed the Office of General Counsel’s view that digital assets also occupy this “regulatory gap” and potentially lie outside the SEC’s jurisdiction. 

Deaton stressed, “If the SEC lacks jurisdiction over digital assets and crypto exchanges then enforcement actions do IN FACT commit “violence to the separation of powers.” The argument below is nonsensical.

Saying “ONLY the executive branch can bring enforcement actions” Therefore it’s within the executive branch’s function would apply to every single enforcement action by every agency within the executive branch.”

While the SEC is permitted to file enforcement actions related to securities under the 1934 Securities Act, including “investment contracts” as defined in the Howey case, there are limits to its authority, according to Deaton.

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