The Electronic Frontier Foundation (EFF), a non-profit “digital rights” organization, has hit out against the recent Securities and Exchange Commission (SEC) charges against EtherDelta (ED) founder Zachary Coburn in a letter, calling the SEC “dangerously broad” and “unconstitutional."
EtherDelta is a decentralized exchange (DEX) allowing users to exchange Ethereum (ETH) ERC-20 tokens. Any ERC-20 token can be traded on the platform without permission, using only the token’s ERC-20 smart contract address to list.
The SEC charged Coburn with “Operating an Unregistered Exchange” for his role in developing ED (not in actually running it). He settled out of court, accepting almost $400,000 in disgorgement and penalties.
As an open platform, ED could and did (and continues to) host trading of the kinds of tokens that the SEC have been attempting to classify as securities. The SEC have met with some recent failures in this regard, however, and were denied an injunction against Blockvest last November by a San Diego District Judge.
A Key Precedent
The EFF see the Coburn case squarely as a violation of free speech, a right enshrined in the First Amendment of the US Constitution. They consider the SEC’s opinion, that “an entity that provides an algorithm” (e.g., writes code) could be in violation of securities laws, to be “an affront to the First Amendment.”
In response to the SEC’s actions, the EFF issued a letter to the SEC’s Secretary Brent Fields, outlining four potential violations of the First Amendment that could be gleaned out of the SEC’s actions: violating right of writing computer code; violating the protection of financial transactions; violating the freedom to write potentially controversial code without deploying it; and violating the right against “After-the-Fact Liability for Writing and Publishing Code.” The EFF also cited legal precedents to support all of these concerns.
Furthermore, the EFF voiced a concern that the SEC could “Chill Blockchain Innovation, Even Beyond Decentralized Exchanges” with such attempts at prosecution of coders.
The EFF also specifically highlighted the pivotal 1995 legal case, Bernstein v. United States, a legal battle which marked the change in regulatory status of encrypted computer code; from being considered a munition (i.e., a weapon) that could not be disseminated, to a form of free speech.