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The United States Securities and Exchange Commission (SEC) showed up with a slightly unexpected response in a recent filing. In the letter, the financial regulator noted that the crypto exchange Coinbase was aware that its listings are prone to federal securities laws.
The SEC lawyers wrote a letter to the Southern District Court of New York Judge Katehrine Polk Failla on Friday, July 7, 2023. The letter came in the wake of responding to the earlier filing from the leading US crypto exchange. The company argued that the regulator did not have authority to take action and that it went beyond its jurisdiction.
In its letter, the US financial regulator noted that it would oppose any Coinbase filed judgment motion. Also, it sought the crypto firm’s arguments on its jurisdiction to null the charges brought against it to strike.
About a month ago, the US SEC’s regulatory enforcement actions on the crypto industry included suing major crypto exchanges including Coinbase. It charged the prominent crypto firm under the allegations of operating as an unregistered exchange service provider, clearinghouse, and broker. The allegations also went on to call out the company for listing 13 cryptocurrencies which the regulator sought unregistered securities.
The hearing for the case is scheduled to take place in the District Court for the Southern District of New York on July 13.
SEC Puts the Argument Forward Against Coinbase
The SEC stated “Coinbase, a multi-billion-dollar entity advised by sophisticated legal counsel, argues it was unaware that its conduct risked violating the federal securities laws, and suggests that by approving Coinbase’s registration statement in 2021 the SEC confirmed the legality of Coinbase’s underlying business activities – at that time and for all time.”
According to the regulator, Coinbase had previously embraced the legal framework established by the U.S. Supreme Court to assess if specific cryptocurrencies complied with federal securities laws. Moreover, the company explicitly discouraged crypto issuers from making statements that were conventionally linked to securities.
As per Coinbase’s public filings, it is acknowledged that one potential risk for investors is the possibility of listed assets being classified as securities.
The filing stated that Coinbase’s actions demonstrated a clear understanding that securities laws could be applicable to its operations. It further noted that the company was aware of the specific rules to assess the legality of its conduct, yet knowingly choose to accept this risk in order to expand its business.
In response to Coinbase’s proposed motion for judgment, the SEC provided a preview of its counterarguments, stating that the crypto exchange put forth two arguments that were deemed equally flawed.
Coinbase’s first argument contended that an investment contract must involve a formal contractual agreement, while the second argument posited that investment contracts are exclusively considered as asset sales when they are being traded on secondary markets.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
