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The cryptocurrency industry has been reeling under enforcement actions of US financial regulators, which ramped up in the past several months. One of the most controversial of these enforcement actions was the Securities and Exchange Commission’s (SEC) charges against the leading US crypto exchange Coinbase. Recently, the company responded to the regulator’s lawsuit in a US court.
Coinbase filed a motion on Thursday, June 28, with the United States District Court for the Southern District of New York. In the document, Coinbase raised concerns regarding the interpretation of securities laws by the SEC. The crypto exchange’s filing noted that the agency was going beyond its authority.
The company’s argument states that the securities laws that SEC was applying over several cryptocurrencies was not in line with the existing regulations.
Chief legal officer of Coinbase, Paul Grewal, stated that the claims made by the regulatory agency are out of the existing law, so the claims become liable to get dismissed.
Today @coinbase filed our answer and notice of intent to file a motion to dismiss the @SECGov case against us. You can read our response for yourself – our arguments speak for themselves. 1/2 https://t.co/Ld2ZEejhyM
— paulgrewal.eth (@iampaulgrewal) June 29, 2023
Coinbase’s decision to file a motion to dismiss demonstrates its firm resolve to contest the SEC’s lawsuit. By filing this motion, Coinbase is asserting that, even if all the allegations presented in the lawsuit are assumed to be true, the plaintiff lacks a legitimate legal claim. This strategic move underscores Coinbase’s determination to challenge the lawsuit head-on.
The SEC, being a U.S. government agency, imposes a requirement that any platform facilitating the trading of assets, specifically those classified as securities, must register with the agency. This regulatory measure ensures compliance with the established guidelines and standards set forth by the SEC.
The SEC’s definition of a security encompasses investment contracts, which have been interpreted by the Supreme Court through the Howey Test. This test includes transactions where individuals invest money in a common enterprise with the expectation of earning profits primarily from the efforts of others. In its lawsuit, the SEC specifically identified 12 crypto tokens as securities, namely SOL, ADA, MATIC, SAND, FLOW, ICP, NEAR, and DASH. The SEC’s classification indicates its assertion that these tokens fall within the scope of securities regulation.
In the filing submitted on Thursday, Coinbase argued that the digital assets under scrutiny are not securities. Furthermore, Coinbase stated that secondary transactions involving these assets are also not classified as securities, citing various reasons to support their position.
The legal document also highlighted what the company characterized as inconsistencies in the SEC’s actions. It emphasized that the SEC did not raise any objections to six of these tokens during their previous interactions with Coinbase in 2021. This observation underscored the perceived disparity in the SEC’s approach and added weight to Coinbase’s argument.
Furthermore, the legal team representing the exchange contended that in 2021, the SEC granted approval for Coinbase’s registration statement, deeming it effective. This authorization enabled the company to offer its shares to investors during its initial public offering (IPO). By highlighting this fact, Coinbase’s lawyers sought to emphasize the prior acknowledgment and acceptance of the company’s operations by the SEC itself.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
