Coinbase on final push to dismiss SEC lawsuit
Lawyers representing US crypto exchange Coinbase have filed a motion alleging that the U.S. Securities and Exchange Commission (SEC) exceeded its jurisdiction by labeling certain cryptocurrencies listed on the exchange as securities.
Coinbase claims that the SEC’s current definition of what constitutes a security is overly broad. The exchange argues that many of the cryptocurrencies it offers do not fall within the regulatory domain of the SEC. The filing elaborates that the SEC seems to have stretched the boundaries of its authority, extending its jurisdiction “over essentially all investment activity.” According to Coinbase, such an overarching role should ideally be reserved for Congress based on the major questions doctrine.
Paul Grewal, Chief Legal Officer at Coinbase, amplified the exchange’s stance in an Oct. 24 post on X, the social media platform. He pointed out that the definitions employed by the SEC lack discernible boundaries.
This legal move by Coinbase is a reaction to the SEC’s earlier position presented on Oct. 3. In that submission, the securities regulator requested that a federal judge deny Coinbase’s motion to dismiss the regulator’s lawsuit against the cryptocurrency exchange.
The agency argues that Coinbase was mistaken in relying on a recent court ruling involving Ripple Labs Inc., which found that Ripple did not violate federal securities law by selling its XRP token on public exchanges. The SEC points to a subsequent ruling in the case of Terraform Labs that rejected the court’s reasoning in the Ripple case.
In essence, the SEC is arguing that the legal precedent set by the Ripple case does not apply uniformly to all cryptocurrency-related cases, and therefore, Coinbase should not be granted dismissal based solely on that precedent.
The regulator further argued that Coinbase has been aware from the beginning that cryptocurrencies it offers could be considered securities if they meet the Howey test, a legal standard used to determine whether an asset qualifies as an investment contract. The SEC alleges that Coinbase acknowledged this in its filings with the SEC.
Furthermore, the SEC challenged Coinbase’s argument by invoking the “major questions doctrine,” which suggests that the agency lacks authority over the cryptocurrency market unless Congress explicitly grants it such authority. This argument challenges Coinbase’s assertion that the SEC’s actions in regulating cryptocurrencies are beyond its jurisdiction.
The legal dispute between Coinbase and the SEC revolves around the classification of certain cryptocurrencies as securities, and it broadly raises important questions about the regulatory oversight of the cryptocurrency industry in the United States.
The SEC claims that at least 13 crypto assets offered by Coinbase fall under the category of “crypto asset securities” as defined by the regulator.