SEC asks judge to keep Coinbase lawsuit alive
The U.S. Securities and Exchange Commission (SEC) has 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.
“Each crypto asset issuer invited investors — including purchasers on Coinbase’s platform — reasonably to expect the value of their investment to increase based on the issuer’s broadly-disseminated plan to develop and maintain the asset’s value,” the SEC wrote.
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.
Lawyers representing Coinbase filed in August a motion requesting a New York federal court to dismiss a lawsuit brought by the commission. 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.
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.