Coinbase is disputing the United States Securities and Exchange Commission’s (SEC) classification of its listed cryptocurrencies as securities. The exchange argues that the SEC’s definition of an investment contract does not align with U.S. securities laws.
In its final bid to dismiss the SEC’s lawsuit, Coinbase contends that the SEC has exceeded its authority by categorizing the cryptocurrencies it lists as securities. The exchange, in an Oct. 24 filing in a New York District Court, criticizes the SEC’s broad definition of what qualifies as a security. It also asserts that the listed cryptocurrencies fall outside the regulator’s purview.
“The SEC’s authority is limited to securities transactions,” Coinbase argues. It further emphasizes that not every capital transaction with a hope of gain qualifies. Also, that trades over Coinbase are only considered securities transactions if they involve ‘investment contracts,’ which, according to Coinbase, is not the case in the transactions under scrutiny.
Legal Duel and Recent Developments
Coinbase accuses the SEC of a “radical expansion of its own authority,” asserting that the regulator has claimed jurisdiction “over essentially all investment activity,” a prerogative reserved for Congress under the major questions doctrine. Coinbase’s Chief Legal Officer, Paul Grewal, echoes these claims, stating that the SEC’s definitions lack a limiting function.
Furthermore, Coinbase’s recent filing is a response to the SEC’s Oct. 3 rebuttal, where the regulator urged the court to reject Coinbase’s dismissal motion. The SEC maintains its belief that the cryptocurrencies listed by Coinbase are investment contracts under the Howey test.
The SEC initially sued Coinbase on June 6. It alleged that the exchange violated U.S. securities laws by listing tokens it considers securities without registering with the regulator. Coinbase, in a motion for judgment on June 29, argued that the SEC was abusing its power and infringing on Coinbase’s due process rights.
The Road Ahead: Judge’s Decision
Judge Katherine Polk Failla, overseeing the case, may call Coinbase and the SEC for oral arguments before issuing judgment. The judgment could involve dismissing the case, proceeding to trial, or deferring the decision to a jury.