The United States (US) Securities and Exchange Commission (SEC) delivered a compelling court filling in response to Coinbase’s persistent attempts to dismiss the lawsuit filed against it.
The SEC’s suit alleges multiple violations of securities laws by the cryptocurrency exchange.
Coinbase had initially sought to have the regulator’s charges dismissed back in August, contending that none of the services it provides on its platform should be subject to securities regulations.
However, the SEC has countered this argument by asserting that Coinbase’s role as an intermediary in transactions involving investment contracts aligns with the Howey Test.
The regulator addressed the issue:
“Ignoring [the application of the Howey test], Coinbase instead asks the Court to conclude that crypto asset transactions on its platform can never involve ‘investment contracts.'”
The Howey Test serves as a fundamental benchmark for evaluating investment contracts under American securities law.
In response, Coinbase plans to argue that investment contracts inherently involve common law contractual agreements, which they claim they do not rely upon.
The SEC has countered this notion, emphasising that such reliance is not a prerequisite.
They have pointed out that courts have historically applied securities laws to investments made outside of formal contracts, even though contractual agreements may occasionally be considered.
In a post on X, Coinbase’s Chief Legal Officer, Paul Grewal, dismissed the SEC’s arguments as “more of the same old same old” and maintained that the assets listed on Coinbase are not securities, firmly asserting they fall outside the SEC’s jurisdiction.
He humorously added that if the SEC’s arguments held, it would mean “everything from Pokemon cards to stamps to Swiftie bracelets are also securities.”
Miles Jennings, the Crypto General Counsel at a16z, scrutinised the SEC’s motion in a subsequent post, identifying what he saw as significant flaws.
He contended that even if the court were to align with the regulator’s primary argument concerning investment contracts, the case should still not hold, as he believes the SEC’s definition of an investment contract is overly broad.
The SEC further expressed its dissatisfaction with Coinbase’s attempt to attribute its current legal predicament to alleged deficiencies in the regulatory process.
Specifically, the SEC challenged Coinbase’s efforts to invoke the “major questions doctrine,” a doctrine through which Coinbase asserts that Congress has not explicitly delegated authority to the SEC regarding the matters under consideration.
In response, the SEC argued in its filling that it has not assumed any new powers but is operating within the confines of existing federal securities law.
Furthermore, the agency disputed Coinbase’s efforts to distinguish itself from past cases involving LBRY, Kik, and Telegram, all of which resulted in the SEC securing settlements against the targeted companies.
The regulator also countered:
“[Coinbase] has known all along that a crypto asset bought and sold on its trading platform is a security if it meets the Howey test — as it recognised on its website as far back as 2016 and in its filings with the SEC, as well as in … efforts to analyse assets it was considering listing … using the Howey test.”
It is worth noting that the SEC initially filed its case against Coinbase on 6 June, setting the stage for a complex legal battle that continues to evolve.