> Only if there's an active law enforcement investigation the FOIA request touches.
Right, but that doesn't mean that the named entity is either the target or even a subject of the investigation. Because the FOIA request is for all documents relating to the entity, if there is even one document related to any investigation of anything that mentions the named entity in any capacity, it is going to be withheld for that reason.
"We can't give you these records because it'd interfere with law enforcement activities, which may not exist" seems like it'd be a pretty big loophole in FOIA if you could use it that way.
That's not what it's saying. They didn't say law enforcement activities didn't exist, they said a violation of the law may not exist.
In the case of literally any law enforcement activity, information is collected before law enforcement can come to any conclusion whether or not a law was broken.
The claim made is "under undisclosed SEC investigation", not "has already been convicted".
A FOIA response of this nature indicates there's some level of investigation occurring, or they couldn't use that reason and would have to find another reason to deny it.
The question itself presupposes that there is an investigation, so they are essentially saying that if there were such materials it would be covered by that reason.
FOIA would be abused like crazy to unearth classified information if this method of questioning worked
Denials for outright false reasons are the norm, responses routinely take 10x longer than legally allowed. Just go browse muckrock for a while to see what a mess it is.
Why does this get downvotes? It's simply how things are, FOIA is a rather adversarial process. If you spend any time on muckrock you will see that only a very small % of requests actually get serious replies from the government, more often the responses seem like straight up trolling "Hey, we were supposed to reply to you 2 years ago but didn't feel like it. Are you still interested in this request?"
"the Commission does not disclose the existence or non-existence of an investigation" seems to make it clear that law enforcement activities may not exist either. In order to comply with that, they would not be able to answer something like 'we do not have any records because there is no investigation', so you necessarily get a vague letter like this that seems like it may be suggesting there is an investigation.
This is exactly how FOIA works, it’s rare that you get a real response without appealing at least one of these denials. Very often they will not comply unless you file a lawsuit to show that you’re serious.
"tether is a fraud/ponzi" claims aside, does SEC even have jurisdiction here? The SEC isn't out to protect all investors, only to protect them from securities fraud. I'm skeptical whether a stablecoin could even count as a security. From bloomberg:
>The rule in the U.S. is that an “investment contract,” meaning “the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others,” is a security
Under that definition, are stablecoins even securities? You buy it at $1 and the best you can hope for it is that the value remains at $1. There's no expectation of profits.
>not that all securities are "investment contracts".
If you search around people do seem to think that "investment contracts" are "security" (eg. https://www.investopedia.com/terms/h/howey-test.asp) although I can't find someone saying "investment contracts iff security". If that's not the case, can you list what else counts as securities, and why do you think stablecoins meets those definitions?
I am far from an expert however following https://www.investopedia.com/terms/s/seact1934.asp the SEC can over see over the counter securieties (https://www.investopedia.com/terms/o/otc.asp) that seems to cover financial contracts that derive their value from an underlying asset. As far as I understand Tether is backing its value with dollars and has already been in trouble over lending the money it officially used to back its cryptocurrency away without disclosing that to its users.
(1) The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
My understanding is that, in the US at least, "securities" is a broad category that applies to any financial asset or product that isn't regulated under other rules. However, this is pretty uncharted territory, and until there's some judicial precedent, it's impossible to be completely sure.
> My understanding is that, in the US at least, "securities" is a broad category that applies to any financial asset or product that isn't regulated under other rules
This is incorrect. Many financial assets are not securities, tether being a particularly good example.
Gary Gensler thinks crypto is part of their remit:
> The SEC has a three-part mission — to protect investors, facilitate capital formation, and maintain fair, orderly, and efficient markets in between them. We focus on financial stability as well. But at our core, we’re about investor protection.
> If you want to invest in a digital, scarce, speculative store of value, that’s fine. Good-faith actors have been speculating on the value of gold and silver for thousands of years.
> Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West.
>This asset class is rife with fraud, scams, and abuse in certain applications. There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced, and complete information.
>If we don’t address these issues, I worry a lot of people will be hurt.
(taken from one of Matt Levine's emails talking about the SEC and Crypto)
Reminder: #Tether is registered and regulated under FinCEN as all the centralised competitors. Strict KYC/AML is applied to all Tether direct users, as the other main issuers are doing. Less regulated is just FUD. Ask yourself who benefits from spreading such misinformation?
— Paolo Ardoino (@paoloardoino) December 30, 2020
Paolo Ardoino, Tether's chief technology officer.
It doesnt matter who is/isnt regulating you, once you are claiming to be a regulated instrument publicly to people in the US then the SEC have all the jursidiction they need.
>It doesnt matter who is/isnt regulating you, once you are claiming to be a regulated instrument publicly to people in the US then the SEC have all the jursidiction they need.
The SEC does not have unlimited jurisdiction over things which are publicly claiming to be regulated instruments to people in the US.
The SEC regulates securities. According to the "Howey test" provided to us by the US supreme court it appears that Tether is not a security, therefore it does not fall under the jurisdiction of the SEC.
Please indicate your interpretation of the Howey test so that we’re able to consider and respond to your assertion; without knowing why you feel it doesn’t pass them, it’s not really possible for us to consider your comment.
The SEC has provided us with a handy framework to help analyze whether or not a digital asset is likely to meet the Howey Test, you can try it out at https://www.sec.gov/files/dlt-framework.pdf
>C. Reasonable Expectation of Profits Derived from Efforts of Others
There is no expectation of profits from Tether tokens. In fact, you are guaranteed to lose money to inflation even if everything works out perfectly.
There are thousands of search results for “Why should I invest in Tether?”, indicating that general public investors may well expect a profit from their investment in it. After all, if there was no general expectation of profit, how else would Get Rich Quick scam pages sway the general public so easily to invest in it, and why else would these pages exist at all? An investment with no profit potential does not attract flies, and investment is not explicitly restricted to businesses that have fiduciary need to use Tether on behalf of non-investors. It’s certainly enough for the SEC to bring it to trial.
I would encourage you to reconsider your assumption that someone commenting about the Howey test needs you to explain what it is to them. It’s very thoughtful of you to offer that PDF, but offer it with less “you obviously don’t know what you’re talking about” condescension next time, please.
(I am not your lawyer, this is not legal advice, etc.)
>There are thousands of search results for “Why should I invest in Tether?”
But according to google trends nobody ever googles this, and most results appear to be automatically generated SEO spam or not discussing tether as an investment.
>indicating that general public investors may well expect a profit from their investment in it.
Whether or not such an expectation is reasonable is highly relevant. There cannot possibly be any reasonable expectation of profit as USDT will never be redeemed at above 1 USD, you can only lose money.
You seem to be suggesting that unrelated third parties could turn USDT into a security by lying that it's a great investment. I do not think that's true, I think that's simply fraud perpetrated by the third parties. Some Indian SEO spammer can't possibly be the one to decide if USDT is a security or not.
> Get Rich Quick scam pages sway the general public so easily to invest in it, and why else would these pages exist at all?
This is not actually happening. You can find automatically generated SEO spam pages saying essentially anything, but according to Googles own stats this just isn't a real thing.
> An investment with no profit potential does not attract flies, and investment is not explicitly restricted to businesses that have fiduciary need to use Tether on behalf of non-investors.
You have made zero effort to show that there are actually reasonable people investing in tether with the expectation of earning a profit. So far there's no indication that they exist, it seems extremely unlikely that such a person could exist (they wouldn't be reasonable).
> It’s certainly enough for the SEC to bring it to trial.
The SEC can sue you for any bullshit reason, does not mean that their suit won't be immediately thrown out.
>It’s very thoughtful of you to offer that PDF, but offer it with less “you obviously don’t know what you’re talking about” condescension next time, please.
I had no intention of being condescending by linking that PDF. I had forgotten that it exists, and was happy to find it again as it provides what seems to be the clearest public framework for assessing these things.
I'll admit that I'm a little frustrated to see so many commentators here seemingly using their dislike of Tether to justify the kind of weird mental gymnastics required to argue that the SEC should go after Tether. The SEC is simply not the correct regulator for this, there's no indication that they might be.
I'd get it if there was case law to support some of these crazy interpretations of "expectation of profits", but there isn't.
In addition to the Securities Exchange Act of 1934, which created it, the SEC enforces the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes–Oxley Act of 2002, and other statutes.
Despite what a crypto telegram group may suggest, the SEC does more than just run the so called 'Howey Test'.
Honestly I dont know what tether fan boys are so scared of, unless they know it is a scam - a regulator and/or court approval is what they should want, it is what everyone should want. If you believe in crypto you have to campaign for it to be properly classified, that will be they turning point.
As for the 'expectations of profits' zero coupon bonds look identical, collateralised debt obligations on zero yeilding instruments looks identical, USD deposits look identical and JC penny gift cards look identical to tether. Additionally tether can be bought and sold for profit, I personally have done it 1,000s of times.
>In addition to the Securities Exchange Act of 1934, which created it, the SEC enforces the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes–Oxley Act of 2002, and other statutes.
Do you have an actual theory as to which laws Tether may have violated? I have a hard time believing that they'd qualify as investment advisors or have to comply with reporting requirements for publicly listed companies.
>Despite what a crypto telegram group may suggest, the SEC does more than just run the so called 'Howey Test'.
I don't use telegram or participate in any crypto groups, so I wouldn't know what they'd suggest.
>Honestly I dont know what tether fan boys are so scared of, unless they know it is a scam - a regulator and/or court approval is what they should want, it is what everyone should want. If you believe in crypto you have to campaign for it to be properly classified, that will be they turning point.
I'm not a fan of Tether, I expect they will go the way of Liberty Reserve one way or another. Decentralized solutions like Dai have far better chances of success.
I'm just trying to advocate for reasonable discourse and serious analysis of the involved legislation instead of circlejerking.
>As for the 'expectations of profits' zero coupon bonds look identical
There is no 'expectation of profits' test for bonds which are specifically defined to be a security (see 15 U.S. Code § 77b(a)(1).
In a Machiavellian way, I've come to realize that the Standard Operating Procedure for government/bureaus is that when faced with ambiguity about jurisdiction it's better to ask for forgiveness than permission. In practical terms, who's stopping them?
Not so, at least in the U.S. and Canada. As per "Chevron deference" the courts are bound to defer to regulatory agencies over how to interpret ambiguous areas of the law:
> Under that definition, are stablecoins even securities? You buy it at $1 and the best you can hope for it is that the value remains at $1. There's no expectation of profits.
True, as far as I know, but this is not the case for Bitcoin. If, as has been alleged, Tether has been used to fraudulently manipulate Bitcoin prices, the question becomes one of whether Bitcoin falls under the remit of the SEC.
This rumor has been debunked. We had a glance at tether financials when the whole bitfinex IOU swap happened. Tether is backed 1:1 but they have reserves in investments, claimed to be mainly A2. Thats what people had a problem with.
If thats a problem ok, but insurance companies invest their payout holdings in commercial paper as well and theres not much of a public outcry.
Tether claims to be backed 1:1, but claims to have reserves in investments, which are, yes, claimed to be mainly A2.
We have zero evidence of any of these being true other than the word of Tether executives, who have lied about their backing before, as determined in court.
(Also, this is only the latest claim in a series of gradual backtrackings on earlier, fraudulent claims about their reserves.)
Their financials were shown to the new york attorney generals office who then reached a conclusion and settlement which you can read. What they did wrong was issue an IOU to bitfinex which was hacked. Not run up a 10:1 reserve market pumping scheme like tin foil hat wearers claim. Theres lots to say about tether thats bad, but thats not it.
It is worth pointing out that the conclusion and the settlement covers a time before Tether did a massive 10× growth in total circulating currency, and the reserves accounting of the latter phases are not well-established. By Tether's own (very sparse, compared to standards in the financial industry) reporting, ~75% of its reserves are "commercial paper," without any further identification of what commercial paper its holding. And if true, this would make it one of the largest holders of commercial paper, and yet no one has come forward to corroborate transacting commercial paper with Tether.
Since there's no information on what it's holding, it has fueled suspicion that a lot of the holdings are in things like cryptocurrency scam-like companies, or as another theory holds, invested in Evergrande property notes. Tether hasn't released any information that would favor or disfavor these hypotheses.
You're absolutely right. Gensler has cited the Howey test inconsistently. Well, under that definition, stablecoins are not securities. There's no expectation of profits.
I expect future battlelines being drawn around decentralized stablecoins. Tether is private and carries SPOF risk.
> You're absolutely right. Gensler has cited the Howey test inconsistently. Well, under that definition, stablecoins are not securities. There's no expectation of profits.
Uhh, the Howey test is not a magical test to determine what a security is. For many things, Tether included, we have very simple rules based tests.
The Howey test is to determine things that might not qualify under letter-of-the-law but absolutely are investment contracts in substance.
Crypto (stable coins included) runs afoul of both types of definitions pretty much universally.
>the Howey test is not a magical test to determine what a security is
You are correct!
>For many things, Tether included, we have very simple rules based tests.
Then I have a very simple question for you.
Which of the following is Tether? any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
Just choose one of those that would apply to Tether.
Honestly, I'd consider it comparable to the banknotes in the pre-Civil War banking ecosystem.
A bazillion local banks issued scraps of paper they said were exchangeable for "one dollar on demand". (This being when a "dollar" was a large disc of silver or a tiny one of gold).
At the base consumer level, there was no expectation of profit to accept them. At best, you could go over to the bank and they would give you the silver disc you actually wanted.
People settled for it because the alternative was less convenient or accessible, especially in parts of the country where government-issued metal discs didn't circulate freely. (much like in the crypto market, where people choose stablecoins because the fiat on/off-ramps are slow, expensive, or legally burdensome)
It's interesting to consider what happened next for those notes:
First, it was definitely possible to speculate, because bank fraud and failure was a well-known thing and paper notes traded at a discount to coin. A dollar note from a far-away bank that was difficult to redeem might pass at 50 cents, while the well established one down the street would pass at or near face value. Some old newspapers would have reports indicating the going discount rates. Similarly, we've seen stablecoins break peg due to a redemption problem, backing panic, or trust breakdown.
Second, the entire party stopped when the federal government began seriously issuing paper money and instituted a tax on private notes; it made the venture uneconomical overnight. Similarly, an actual central-bank digital currency hitting the exchanges would likely displace many of the use cases of stablecoins.
Third, we had "wildcat banking" -- it looks and smells like a banknote, but the "bank" was in the middle of nowhere, where the only customers are the pumas and bobcats. By putting that sort of obstacle in the way of redemption, you could get away with issuing notes backed by very little or nothing. Reminds me a lot of the stablecoins that say 'we can't directly redeem to Americans' or 'You can only redeem under specific narrow conditions that most retail consumers will never meet', which makes it possible to manage their outflow and hide their capitalization levels.
Depending on a number of factors, Tether falls under a few of these designations (which are overlapping and not mutually exclusive by design).
Tether is without a doubt (by their own design/admission) both a "transferable share" and a "certificate of deposit for a security" (since the majority of their "reserves" are supposedly securities).
1. USDT is not a DAR (Digital Asset Receipt) like other so called "stablecoins" (i.e. it's not backed 1:1 by physical USD). Instead it's a pooled investment fund claiming to keep NAV (Net Asset Value) around 1 USD.
2. it behaves more like an MMF (Money Market Fund)
3. market participants creating and redeeming large blocks of USDT are getting discount to NAV and/or exchange price.
Each of the points above can be interpreted as "With the expectation of profit" clause in the Howey test.
Additionally there are many regulations about MMFs, like breaking the USD peg by more than 5c, i.e. when NAV goes below 95c - the fund should be terminated.
>1. USDT is not a DAR (Digital Asset Receipt) like other so called "stablecoins" (i.e. it's not backed 1:1 by physical USD). Instead it's a pooled investment fund claiming to keep NAV (Net Asset Value) around 1 USD.
But if you buy 1 USDT you do not own a share of that fund. That's the Tether Holdings fund that may or may not be used to redeem your USDT.
There's no indication that your 1USDT will be redeemed for anything less than 1USD even if the value of Tether Holdings's assets sinks below it's liabilities.
>2. it behaves more like an MMF (Money Market Fund)
How does USDT behave like an MMF? MMFs distribute excess earnings to shareholders.
In the case of USDT you aren't a shareholder and don't get anything at all. Your USDT token might be redeemed for 1 USD but certainly not more.
>Each of the points above can be interpreted as "With the expectation of profit" clause in the Howey test.
The expectation of profit needs to be reasonable. There's no chance you'll make a profit with tether, even in the best case scenario it's guaranteed to lose value to inflation.
Regulators don't take actions that risk popping entire markets and creating many billions of dollars of losses on the balance sheets of publicly traded companies like TSLA.
Madoff's Ponzi was pretty obviously a Ponzi and was reported for years as a Ponzi to the SEC and nothing happened until it was finally popped by the market retreating in 2008 and redemptions causing the Ponzi to go completely cash insolvent.
Tether/crypto is going to pop when it pops, and regulators will then step in aggressively afterwards.
Given the Evergrande development, it might pop rather sooner than later. Tether's 'reserves' are largely backed with commercial paper after all, and it stands to reason that much of that is intertwined with the China debt-bubble in one way or another.
> Tether/crypto is going to pop when it pops, and regulators will then step in aggressively afterwards.
Or it might not. Unlike what Madoff was doing, it's perfectly possible for Tether to keep their game up in perpetuity.
Madoff kept his far more ambitious and risky operation going for decades, I think Tether can certainly last for longer if not eviscerated by lawmakers.
If tether went belly up what would happen is everyone would sell their tether for BTC and other cryptos (whatever they can get into) and you would have the largest squeeze of all time. We actually witnessed this during the tether freak out saga a couple years ago where BTC on the bitfinex exchange was priced like 10 or 15% higher than the rest of the market. I wouldnt mind just getting it over with. Then we could get that over with an just have USD trading. But what most likely will happen is they will just be forced to comply with certain rules.
The thought process here is that if you're stuck holding tether if/when it collapses, you can just sell for a crypto that hasn't collapsed. But who in their right minds would want to trade something of value for something that has just been shown to be worth $0?
Right, but who would want to be on the other side of that trade? You're telling me that if I have something worth $0 and you have something of value, you'd want to make that trade with me?
Are you thinking of something like a short squeeze? That only happens because shorts would be forced to buy shares to cover their positions. I don't see how that would apply here. Who's forced to buy people's tether if the price goes to zero?
In reality, everyone who holds tether would just be screwed. Their imaginary token would be worth nothing and they wouldn't be able to exchange them for anything. The value would just disappear in to the air
Wouldn't it cause holders to instantly have part of their portfolio be worthless, which would cause them to have to sell liquid BTC etc to cover their positions. Which would depress the price of btc/eth a lot?
> If tether went belly up what would happen is everyone would sell their tether for BTC and other cryptos (whatever they can get into) and you would have the largest squeeze of all time
What squeeze could there possibly be? No one is forced to deliver anything here so there is absolutely nothing to be squeezed.
now you may get some people willing to buy tether at 10 cents on the dollar but that would only continue to force down the price of tether as you exhaust the very small amount of tether buyers.
> If tether went belly up what would happen is everyone would sell their tether for BTC and other cryptos (whatever they can get into) and you would have the largest squeeze of all time.
I’d like to know who you think would be buying Tether if it was collapsing, you can’t sell if there’s no bid!
Who would be buying the tether? Every trade on an exchange has two sides, who is going to buy USDT that isn’t worth anything?
For example, the $449 strike SPY call expiring in 27 minutes has a bid of 0.00 and an ask of 0.02, meaning nobody will buy if you try to sell the call, but a market maker will sell you one for 0.02. If tether was worthless, the same situation would happen, people would be willing to buy for 0.00 and sell for a bit more than 0.00
If Tether's USDT went belly up, there would be a loss of confidence in the Coinbase exchange, a run on the market, and a collapse in the price of Bitcoin.
Right now, everyone who has an account at Coinbase believes that if they liquidated their Bitcoin tomorrow, they would eventually get genuine US Dollars equal to the amount of money in their account. Under normal operating conditions, this is true. But if Tether's USDT goes down in price significantly, all bets are off.
Under normal operating conditions, when a client sells Bitcoin in their Coinbase account, Coinbase trades Bitcoin for Tether's USDT, the USDT sits in the user's account for a while, and eventually the user get US Dollars.
Where do the US Dollars come from?
Tether has a reserve of some US Dollars, and other non-crypto assets that can be quickly traded for US Dollars. Let's just consider this whole bucket as US Dollar reserves in order to simplify this discussion. The important thing to remember is that Tether's US Dollar reserves are only a small fraction of all outstanding Tethers.
Also, Tether is constantly gathering more US Dollars. On an average day, Tether receives more US Dollars than go out.
If for some reason, everyone decided at the same time that a USDT was worth less that one US Dollar and the price continued to drop over time, everything would change. In this dropping USDT price scenario, anyone who held USDT would go to Tether at the same time and ask for their US Dollars back.
Tether would have a few options at this point, but one option they would not have is giving everyone their US Dollars back. Remember that Tether has limited US Dollar reserves. Assuming they kept trying to refund every request with a full US Dollar, they would blow through their reserve and hang up a closed sign on their window. Tether doesn't have any bankruptcy insurance, and there isn't a government that is likely to bail Tether out. They're not too big to fail.
Oh, Tether would try some tricks to slow down the process. But they may not be able to stop the run on the bank/exchange.
So now, let's assume Tether is worth zero. What happens to Coinbase and it's clients?
Buying Bitcoin would not be a huge problem. Coinbase might have to change their procedures, but they could still find people willing to accept US Dollars in return for Bitcoin.
The trouble would be selling Bitcoin. On a normal day, they just trade Bitcoin for USDT, and if necessary, go to Tether and trade the USDT for US Dollars. But if the normal system doesn't work because a USDT is worth zero, Coinbase would have trouble selling Bitcoin in a timely manner.
People would flood Twitter complaining that they can't get their money out of Bitcoin through Coinbase, and this might trigger a second run. All Coinbase customers might lose confidence at the same time, and try to sell their Bitcoin in their Coinbase accounts at the same time. The price of Bitcoin would crash. Perhaps people would not trust exchanges such as Coinbase for a long time after, and prices might stay low for a long time.
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[ 3.1 ms ] story [ 97.0 ms ] threadRight, but that doesn't mean that the named entity is either the target or even a subject of the investigation. Because the FOIA request is for all documents relating to the entity, if there is even one document related to any investigation of anything that mentions the named entity in any capacity, it is going to be withheld for that reason.
You can see the full letter here: https://twitter.com/CryptoWhale/status/1429819156052983816
In the case of literally any law enforcement activity, information is collected before law enforcement can come to any conclusion whether or not a law was broken.
The claim made is "under undisclosed SEC investigation", not "has already been convicted".
A FOIA response of this nature indicates there's some level of investigation occurring, or they couldn't use that reason and would have to find another reason to deny it.
How is that possible when it says "the Commission does not disclose the existence or non-existence of an investigation"?
FOIA would be abused like crazy to unearth classified information if this method of questioning worked
Denials for outright false reasons are the norm, responses routinely take 10x longer than legally allowed. Just go browse muckrock for a while to see what a mess it is.
For example, look at some of these requests pending (since 2019) with various agencies: https://www.muckrock.com/foi/multirequest/foia-outliers-queu...
Most of the replies are clownish at best.
>The rule in the U.S. is that an “investment contract,” meaning “the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others,” is a security
https://www.bloomberg.com/opinion/articles/2021-09-08/lendin...
Under that definition, are stablecoins even securities? You buy it at $1 and the best you can hope for it is that the value remains at $1. There's no expectation of profits.
If you search around people do seem to think that "investment contracts" are "security" (eg. https://www.investopedia.com/terms/h/howey-test.asp) although I can't find someone saying "investment contracts iff security". If that's not the case, can you list what else counts as securities, and why do you think stablecoins meets those definitions?
(1) The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
This is incorrect. Many financial assets are not securities, tether being a particularly good example.
> The SEC has a three-part mission — to protect investors, facilitate capital formation, and maintain fair, orderly, and efficient markets in between them. We focus on financial stability as well. But at our core, we’re about investor protection.
> If you want to invest in a digital, scarce, speculative store of value, that’s fine. Good-faith actors have been speculating on the value of gold and silver for thousands of years.
> Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West.
>This asset class is rife with fraud, scams, and abuse in certain applications. There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced, and complete information.
>If we don’t address these issues, I worry a lot of people will be hurt.
(taken from one of Matt Levine's emails talking about the SEC and Crypto)
— Paolo Ardoino (@paoloardoino) December 30, 2020
Paolo Ardoino, Tether's chief technology officer.
It doesnt matter who is/isnt regulating you, once you are claiming to be a regulated instrument publicly to people in the US then the SEC have all the jursidiction they need.
The SEC does not have unlimited jurisdiction over things which are publicly claiming to be regulated instruments to people in the US.
The SEC regulates securities. According to the "Howey test" provided to us by the US supreme court it appears that Tether is not a security, therefore it does not fall under the jurisdiction of the SEC.
>C. Reasonable Expectation of Profits Derived from Efforts of Others
There is no expectation of profits from Tether tokens. In fact, you are guaranteed to lose money to inflation even if everything works out perfectly.
I would encourage you to reconsider your assumption that someone commenting about the Howey test needs you to explain what it is to them. It’s very thoughtful of you to offer that PDF, but offer it with less “you obviously don’t know what you’re talking about” condescension next time, please.
(I am not your lawyer, this is not legal advice, etc.)
But according to google trends nobody ever googles this, and most results appear to be automatically generated SEO spam or not discussing tether as an investment.
>indicating that general public investors may well expect a profit from their investment in it.
Whether or not such an expectation is reasonable is highly relevant. There cannot possibly be any reasonable expectation of profit as USDT will never be redeemed at above 1 USD, you can only lose money.
You seem to be suggesting that unrelated third parties could turn USDT into a security by lying that it's a great investment. I do not think that's true, I think that's simply fraud perpetrated by the third parties. Some Indian SEO spammer can't possibly be the one to decide if USDT is a security or not.
> Get Rich Quick scam pages sway the general public so easily to invest in it, and why else would these pages exist at all?
This is not actually happening. You can find automatically generated SEO spam pages saying essentially anything, but according to Googles own stats this just isn't a real thing.
> An investment with no profit potential does not attract flies, and investment is not explicitly restricted to businesses that have fiduciary need to use Tether on behalf of non-investors.
You have made zero effort to show that there are actually reasonable people investing in tether with the expectation of earning a profit. So far there's no indication that they exist, it seems extremely unlikely that such a person could exist (they wouldn't be reasonable).
> It’s certainly enough for the SEC to bring it to trial.
The SEC can sue you for any bullshit reason, does not mean that their suit won't be immediately thrown out.
>It’s very thoughtful of you to offer that PDF, but offer it with less “you obviously don’t know what you’re talking about” condescension next time, please.
I had no intention of being condescending by linking that PDF. I had forgotten that it exists, and was happy to find it again as it provides what seems to be the clearest public framework for assessing these things.
I'll admit that I'm a little frustrated to see so many commentators here seemingly using their dislike of Tether to justify the kind of weird mental gymnastics required to argue that the SEC should go after Tether. The SEC is simply not the correct regulator for this, there's no indication that they might be.
I'd get it if there was case law to support some of these crazy interpretations of "expectation of profits", but there isn't.
Despite what a crypto telegram group may suggest, the SEC does more than just run the so called 'Howey Test'.
Honestly I dont know what tether fan boys are so scared of, unless they know it is a scam - a regulator and/or court approval is what they should want, it is what everyone should want. If you believe in crypto you have to campaign for it to be properly classified, that will be they turning point.
As for the 'expectations of profits' zero coupon bonds look identical, collateralised debt obligations on zero yeilding instruments looks identical, USD deposits look identical and JC penny gift cards look identical to tether. Additionally tether can be bought and sold for profit, I personally have done it 1,000s of times.
Do you have an actual theory as to which laws Tether may have violated? I have a hard time believing that they'd qualify as investment advisors or have to comply with reporting requirements for publicly listed companies.
>Despite what a crypto telegram group may suggest, the SEC does more than just run the so called 'Howey Test'.
I don't use telegram or participate in any crypto groups, so I wouldn't know what they'd suggest.
>Honestly I dont know what tether fan boys are so scared of, unless they know it is a scam - a regulator and/or court approval is what they should want, it is what everyone should want. If you believe in crypto you have to campaign for it to be properly classified, that will be they turning point.
I'm not a fan of Tether, I expect they will go the way of Liberty Reserve one way or another. Decentralized solutions like Dai have far better chances of success.
I'm just trying to advocate for reasonable discourse and serious analysis of the involved legislation instead of circlejerking.
>As for the 'expectations of profits' zero coupon bonds look identical
There is no 'expectation of profits' test for bonds which are specifically defined to be a security (see 15 U.S. Code § 77b(a)(1).
In a Machiavellian way, I've come to realize that the Standard Operating Procedure for government/bureaus is that when faced with ambiguity about jurisdiction it's better to ask for forgiveness than permission. In practical terms, who's stopping them?
Courts? Pretty basic principle of how democratic systems are built.
https://en.wikipedia.org/wiki/Chevron_U.S.A.,_Inc._v._Natura....
Genuinely curious what has given you that impression. Regulators have been insanely slow to act on crypto (and there’s no regulatory overreach here).
In general, it’s a meme that regulators are slow to act and often without any teeth.
True, as far as I know, but this is not the case for Bitcoin. If, as has been alleged, Tether has been used to fraudulently manipulate Bitcoin prices, the question becomes one of whether Bitcoin falls under the remit of the SEC.
If thats a problem ok, but insurance companies invest their payout holdings in commercial paper as well and theres not much of a public outcry.
We have zero evidence of any of these being true other than the word of Tether executives, who have lied about their backing before, as determined in court.
(Also, this is only the latest claim in a series of gradual backtrackings on earlier, fraudulent claims about their reserves.)
Since there's no information on what it's holding, it has fueled suspicion that a lot of the holdings are in things like cryptocurrency scam-like companies, or as another theory holds, invested in Evergrande property notes. Tether hasn't released any information that would favor or disfavor these hypotheses.
(And you are severely understating what they did, as well.)
I expect future battlelines being drawn around decentralized stablecoins. Tether is private and carries SPOF risk.
[1] https://www.investopedia.com/terms/h/howey-test.asp
Uhh, the Howey test is not a magical test to determine what a security is. For many things, Tether included, we have very simple rules based tests.
The Howey test is to determine things that might not qualify under letter-of-the-law but absolutely are investment contracts in substance.
Crypto (stable coins included) runs afoul of both types of definitions pretty much universally.
The SEC has been pretty clear on a number of things, and then Coinbase et al who don’t like the findings come back and play victim.
You are correct!
>For many things, Tether included, we have very simple rules based tests.
Then I have a very simple question for you.
Which of the following is Tether? any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
Just choose one of those that would apply to Tether.
A bazillion local banks issued scraps of paper they said were exchangeable for "one dollar on demand". (This being when a "dollar" was a large disc of silver or a tiny one of gold).
At the base consumer level, there was no expectation of profit to accept them. At best, you could go over to the bank and they would give you the silver disc you actually wanted.
People settled for it because the alternative was less convenient or accessible, especially in parts of the country where government-issued metal discs didn't circulate freely. (much like in the crypto market, where people choose stablecoins because the fiat on/off-ramps are slow, expensive, or legally burdensome)
It's interesting to consider what happened next for those notes:
First, it was definitely possible to speculate, because bank fraud and failure was a well-known thing and paper notes traded at a discount to coin. A dollar note from a far-away bank that was difficult to redeem might pass at 50 cents, while the well established one down the street would pass at or near face value. Some old newspapers would have reports indicating the going discount rates. Similarly, we've seen stablecoins break peg due to a redemption problem, backing panic, or trust breakdown.
Second, the entire party stopped when the federal government began seriously issuing paper money and instituted a tax on private notes; it made the venture uneconomical overnight. Similarly, an actual central-bank digital currency hitting the exchanges would likely displace many of the use cases of stablecoins.
Third, we had "wildcat banking" -- it looks and smells like a banknote, but the "bank" was in the middle of nowhere, where the only customers are the pumas and bobcats. By putting that sort of obstacle in the way of redemption, you could get away with issuing notes backed by very little or nothing. Reminds me a lot of the stablecoins that say 'we can't directly redeem to Americans' or 'You can only redeem under specific narrow conditions that most retail consumers will never meet', which makes it possible to manage their outflow and hide their capitalization levels.
Tether is without a doubt (by their own design/admission) both a "transferable share" and a "certificate of deposit for a security" (since the majority of their "reserves" are supposedly securities).
2. it behaves more like an MMF (Money Market Fund)
3. market participants creating and redeeming large blocks of USDT are getting discount to NAV and/or exchange price.
Each of the points above can be interpreted as "With the expectation of profit" clause in the Howey test.
Additionally there are many regulations about MMFs, like breaking the USD peg by more than 5c, i.e. when NAV goes below 95c - the fund should be terminated.
But if you buy 1 USDT you do not own a share of that fund. That's the Tether Holdings fund that may or may not be used to redeem your USDT.
There's no indication that your 1USDT will be redeemed for anything less than 1USD even if the value of Tether Holdings's assets sinks below it's liabilities.
>2. it behaves more like an MMF (Money Market Fund)
How does USDT behave like an MMF? MMFs distribute excess earnings to shareholders.
In the case of USDT you aren't a shareholder and don't get anything at all. Your USDT token might be redeemed for 1 USD but certainly not more.
>Each of the points above can be interpreted as "With the expectation of profit" clause in the Howey test.
The expectation of profit needs to be reasonable. There's no chance you'll make a profit with tether, even in the best case scenario it's guaranteed to lose value to inflation.
Madoff's Ponzi was pretty obviously a Ponzi and was reported for years as a Ponzi to the SEC and nothing happened until it was finally popped by the market retreating in 2008 and redemptions causing the Ponzi to go completely cash insolvent.
Tether/crypto is going to pop when it pops, and regulators will then step in aggressively afterwards.
Or it might not. Unlike what Madoff was doing, it's perfectly possible for Tether to keep their game up in perpetuity.
Madoff kept his far more ambitious and risky operation going for decades, I think Tether can certainly last for longer if not eviscerated by lawmakers.
Wouldn't mind if the SEC takes tether down a notch...they're a risk to the entire crypto ecosystem
What squeeze could there possibly be? No one is forced to deliver anything here so there is absolutely nothing to be squeezed.
now you may get some people willing to buy tether at 10 cents on the dollar but that would only continue to force down the price of tether as you exhaust the very small amount of tether buyers.
Who do you see being squeezed here?
I’d like to know who you think would be buying Tether if it was collapsing, you can’t sell if there’s no bid!
What do you mean by "tether went belly up"? Even when it's "belly up" it still has value to trade for BTC?
For example, the $449 strike SPY call expiring in 27 minutes has a bid of 0.00 and an ask of 0.02, meaning nobody will buy if you try to sell the call, but a market maker will sell you one for 0.02. If tether was worthless, the same situation would happen, people would be willing to buy for 0.00 and sell for a bit more than 0.00
Right now, everyone who has an account at Coinbase believes that if they liquidated their Bitcoin tomorrow, they would eventually get genuine US Dollars equal to the amount of money in their account. Under normal operating conditions, this is true. But if Tether's USDT goes down in price significantly, all bets are off.
Under normal operating conditions, when a client sells Bitcoin in their Coinbase account, Coinbase trades Bitcoin for Tether's USDT, the USDT sits in the user's account for a while, and eventually the user get US Dollars.
Where do the US Dollars come from?
Tether has a reserve of some US Dollars, and other non-crypto assets that can be quickly traded for US Dollars. Let's just consider this whole bucket as US Dollar reserves in order to simplify this discussion. The important thing to remember is that Tether's US Dollar reserves are only a small fraction of all outstanding Tethers.
Also, Tether is constantly gathering more US Dollars. On an average day, Tether receives more US Dollars than go out.
If for some reason, everyone decided at the same time that a USDT was worth less that one US Dollar and the price continued to drop over time, everything would change. In this dropping USDT price scenario, anyone who held USDT would go to Tether at the same time and ask for their US Dollars back.
Tether would have a few options at this point, but one option they would not have is giving everyone their US Dollars back. Remember that Tether has limited US Dollar reserves. Assuming they kept trying to refund every request with a full US Dollar, they would blow through their reserve and hang up a closed sign on their window. Tether doesn't have any bankruptcy insurance, and there isn't a government that is likely to bail Tether out. They're not too big to fail.
Oh, Tether would try some tricks to slow down the process. But they may not be able to stop the run on the bank/exchange.
So now, let's assume Tether is worth zero. What happens to Coinbase and it's clients?
Buying Bitcoin would not be a huge problem. Coinbase might have to change their procedures, but they could still find people willing to accept US Dollars in return for Bitcoin.
The trouble would be selling Bitcoin. On a normal day, they just trade Bitcoin for USDT, and if necessary, go to Tether and trade the USDT for US Dollars. But if the normal system doesn't work because a USDT is worth zero, Coinbase would have trouble selling Bitcoin in a timely manner.
People would flood Twitter complaining that they can't get their money out of Bitcoin through Coinbase, and this might trigger a second run. All Coinbase customers might lose confidence at the same time, and try to sell their Bitcoin in their Coinbase accounts at the same time. The price of Bitcoin would crash. Perhaps people would not trust exchanges such as Coinbase for a long time after, and prices might stay low for a long time.
This is all just a wild guess. What do I know?