In a significant development in the ongoing legal battle between Coinbase and the US Securities and Exchange Commission (SEC), the American cryptocurrency exchange has filed a motion to dismiss the SEC’s lawsuit.
Coinbase argues that digital assets listed on its platform do not fall under the jurisdiction of the SEC, and disputes the regulator’s assertion that several cryptocurrencies offered on its platforms are unregistered securities.
The SEC had filed a lawsuit against Coinbase in early June, alleging that a dozen cryptocurrencies offered on the exchange’s wallet or trading platforms were unregistered securities.
Coinbase’s 177-page response, filed Thursday, June 29, counters this claim by stating that these cryptocurrencies do not qualify as investment contracts, and therefore, should not be classified as securities.
Coinbase Denies SEC Jurisdiction
Coinbase claims that cryptocurrencies traded on its secondary market platform are not part of a deal in which a promoter sells a contract-linked asset. The company thus points to the Howey Supreme Court case in support of its position.
According to Coinbase, the issuers of these tokens have no obligations to investors, which underscores the argument that transactions made on Coinbase’s secondary market are not securities. The value derived from these transactions lies in the assets themselves and not in the underlying companies that generated them, according to the filing:
“None of the assets that the SEC has now identified are in fact securities, and for that and other reasons, the secondary transactions in those assets are also not securities. […] none of these meet Howey’s definition of an “investment contract”.
Upon arguing the opposite, the SEC has proposed a novel construction of the operating term which is devoid of […] legal context the supreme court and the commission itself agreed long ago they should disclose the meaning of the term.”
Coinbase also notes that during his tenure, SEC Chairman Gary Gensler changed his position on the regulator’s powers over cryptocurrencies: furthermore, he notes repeated calls for Coinbase regulation.
The motion also points out that the Congress has begun to explore the issue of crypto regulation. The motion to dismiss claims that even if the SEC were correct in asserting its regulatory authority over such assets and services, the case should be dismissed due to violations of Coinbase’s due process rights and an alleged abuse of process.
The exchange argues that the company willingly complied with the rules of various overlapping regulators, sought guidance from the SEC, and followed limited formal guidance from the SEC, senior SEC staff, and the courts regarding the application of securities laws to the cryptocurrency industry.
Showdown in Seven Weeks?
In a separate document filed with the high court judge, Coinbase contends that its due process rights were violated when the SEC brought the action. The company claims that the SEC’s action violates the “top questions” doctrine:
“Even if the proposed construction were plausible, the main issues doctrine would advise against its adoption by this court, and would favor deference to the legislative prerogative of Congress to address itself major policy decisions affecting substantial segments of the industry.”
Coinbase is asking the judge for permission to file a sentencing motion and is proposing a seven-week timeline for its motion, the SEC’s opposition, and its own response to the opposition. Paul Grewal, Coinbase’s chief legal officer (CLO), emphasized that the claims made in the lawsuit go beyond existing law and must be dismissed. Currently, COIN’s share price managed to break above the 200-day EMA, trading at $70.75.
By Marina Meza
