Kirk & Ingram files amicus brief on behalf of Investor Choice Advocates Network in SEC v. Payward Ventures
On February 28, Kirk & Ingram filed an amicus brief on behalf of Investor Choice Advocates Network (ICAN) in support of a motion to dismiss the SEC’s complaint against Payward, Inc., better known as the cryptocurrency exchange Kraken. The brief is available here.
ICAN’s brief explores critically important themes with implications for numerous cases filed by the SEC against actors in the digital asset industry, including:
The statutory scope of “investment contracts”: The contention that digital assets or their sales constitute “investment contracts” underpins most of the SEC’s theories in digital asset enforcement actions. The brief explains the origins of this important term in state-law securities cases and the historical requirement that an investment contract entail a contractual obligation to share the profits of an enterprise.
Statements regarding digital assets: The brief examines the implications of the SEC’s contention that digital assets can constitute investment contracts based on creators’ or developers’ statements about those assets, even in the absence of any contractual obligation. As the brief details, statements about many types of assets, digital and otherwise, may lead purchasers to think that an asset could appreciate in value. Allowing those statements to transform assets into investment contracts, in the absence of any contractual obligation, would risk placing all manner of assets into the purview of the securities laws and could chill important commercial speech by creators, ultimately leaving the public with less information about the assets they purchase.
Inherent characteristics of digital assets: The brief critiques the SEC’s reliance upon inherent design features of digital assets, including staking and burning mechanisms, in contending that certain digital assets are investment contracts. As the brief explains, where these functions are built into the design of the digital asset itself, any resulting expectation of profits is not derived from third-party managerial efforts. Rather, any profit expectation arises out of the qualities of the asset itself, much like oil derives some of its value from being a depleting resource, or an orange tree derives some of its value from its ability to grow oranges.