Lawyers Argue SEC’s Case Against Coinbase Should be Dismissed
Lawyers representing cryptocurrency exchange Coinbase are urging a New York judge to dismiss a case brought against the company by the Securities and Exchange Commission (SEC). The SEC had charged Coinbase in June for failing to register as a securities exchange, broker, and clearing agency. However, Coinbase argued that the agency’s authority is limited to securities transactions only.
In its filing, Coinbase stated that investment contracts are considered securities because they grant purchasers contractual claims related to future income, profits, or assets of a business enterprise. The exchange maintained that since the SEC’s complaint does not involve ongoing contractual obligations related to a business enterprise, it should be entitled to judgment on the pleadings.
Coinbase also challenged the SEC’s argument that an investment contract exists whenever someone expects their purchase to increase in value or if they part with capital. To illustrate its point, Coinbase gave an example of an artist selling paintings on Etsy with a note about plans to exhibit her work in a gallery. According to Coinbase, if the SEC’s conception were applied, each sale and resale of the paintings on Etsy would be considered a securities transaction.
Coinbase further criticized the SEC’s interpretation of the Howey Test, a 1946 Supreme Court case used to determine whether transactions qualify as investment contracts. The exchange claimed that the SEC had stretched its arguments beyond recognition.
Support for SEC
The North American Securities Administrators Association (NASAA), a group of state securities regulators, expressed support for the SEC in an amicus brief filed in the same case. NASAA argued against treating digital assets as “somehow special” and urged the court not to deviate from established securities laws.
Coinbase also asserted that the major questions doctrine does apply, despite critics suggesting otherwise. This doctrine states that if an agency wants to decide on an issue of major national significance, it must be supported by clear congressional authorization.
Judge Katherine Polk Failla, who was appointed by former President Barack Obama, is presiding over the SEC vs. Coinbase case. Failla recently dismissed a case involving a class action lawsuit against Uniswap Labs and other investors, emphasizing that the expansion of federal securities laws should be determined by Congress.
Hot Take: Coinbase Challenges SEC’s Authority
Coinbase’s legal battle with the SEC continues as the exchange argues that the agency exceeded its authority in charging Coinbase for failing to register as a securities exchange, broker, and clearing agency. Coinbase contends that the SEC’s power is limited to securities transactions and investment contracts involving ongoing contractual obligations related to a business enterprise. By challenging the SEC’s interpretation of the Howey Test and raising questions about the major questions doctrine, Coinbase aims to undermine the legitimacy of the case brought against it. The outcome of this legal dispute could have significant implications for how cryptocurrencies are regulated in the United States.
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