Coinbase says tokens are not securities, asks judge to toss SEC complaint
Lawyers representing US crypto exchange Coinbase have filed a motion requesting a New York federal court to dismiss a lawsuit brought by the Securities and Exchange Commission (SEC) in June. 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.
The lawyers argue that the world’s largest publicly traded cryptocurrency exchange does not offer securities and, as a result, the agency lacks jurisdiction to regulate its business. Additionally, they claim that the SEC’s actions have violated due process, abused its discretion, and deviated from its own previous interpretations of the securities laws.
“Because as a matter of law none of them are securities, the claims must be dismissed. The SEC has also trampled the strict boundaries on its basic authority set by Congress,” said Paul Grewal, the company’s chief legal officer in a post announcing the motion.
“An economic arrangement can qualify as an investment contract only if it involves an ongoing business enterprise whose management owes enforceable obligations,” he added.
Earlier, CEO Brian Armstrong and Grewal released a joint video in which they claimed that SEC staffers appear to rest on “superficial and incorrect analogies to products and services offered by others” to justify an enforcement action against Coinbase.
Armstrong said that at the time when Coinbase went public in 2021, they had detailed discussions with the SEC about their business that are now — two years later — the subject of the lawsuit against them.
Coinbase executives also pushed back against perceived overreach by the SEC, which has moved aggressively against the crypto industry since the collapse of FTX. The statement suggests that the SEC has changed its stance on Coinbase, despite a lack of regulatory developments. According to founder, the agency acknowledged in 2021 that it didn’t have the authority for enforcement actions against Coinbase, but seems to have changed its mind since then.
The legal battle took a new twist two weeks ago after Coinbase told its customers from California, New Jersey, South Carolina, and Wisconsin that they will no longer be able to stake digital tokens on its platform until further notice.
In particular, the SEC is looking at aspects of Coinbase’s staking service Earn, as well as investment and custody services, and part of its spot trading business. The watchdog alleges that the listed company broke securities law by acting as an unregistered broker and failing to register as an exchange. Additionally, the agency classified Coinbase Earn’s staking program, which allows investors to earn interest on their tokens, as an unregistered security.
In a coordinated effort, regulators from 10 states also filed charges against America’s largest crypto exchange on the same day. According to the complaint, Coinbase’s prime brokerage, exchange, and staking programs have been violating securities laws.
