The ongoing case between the United States Securities and Exchange Commission (SEC) and Coinbase has been full of twists and turns. In a recent move both the entities have engaged with the court via fillings and here SEC is coming out stronger.
On Friday, the SEC filed its response against Coinbase’s filing which stated that the agency does not have sufficient jurisdiction to bring a lawsuit against it. The regulator stated that Coinbase acknowledged the possibility that federal securities laws would apply to its listings years ago.
In the document, the SEC said that it would oppose any motion for judgement Coinbase would file. It also asked the court to reject Coinbase’s arguments that the suit violated the major questions doctrine and other concerns. The SEC stated in the filing:
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.
Further, the regulator stated that Coinbase had previously “adopted the very legal framework” enacted by the U.S. Supreme Court to determine whether certain cryptocurrencies meet the requirements of federal securities laws, while “explicitly discourag[ing]” crypto issuers from making any statements “traditionally associated with securities.” The filling added:
These actions clearly show that Coinbase understood that the securities laws could apply to its conduct and knew which rules to consider in evaluating the legality of its conduct, but nevertheless made the calculated decision to take on this risk in the name of growing its business.
Furthermore, the SEC previewed its arguments against Coinbase’s proposed motion for judgement, saying the crypto exchange made two “equally flawed arguments.” The first argument the exchange made was saying an investment contract must include a formal contract. The second arguments implied that investment contracts are only asset sales if they’re being traded on secondary markets.
Referring to its recent legal win against LBRY, the SEC stated that the Howey Test does not need a formal contract and transactions on secondary markets may still violate securities laws. The SEC added that Coinbase is also wrong in its major questions doctrine argument. It stated:
This case, by contrast, involves the SEC’s exercise of its longstanding authority to enforce statutory requirements. In 1934, Congress authorized the SEC to enforce the federal securities laws through civil law enforcement actions.
Additionally, the SEC outlined that Coinbase’s own public filings also note that one potential risk to Coinbase investors include the fact that listed assets might be considered securities.
On June 6th, the SEC sued Coinbase for violating federal securities laws and operating without a license. It alleged that Coinbase was operating as an unregistered broker, clearinghouse and exchange all in one go, having listed at least 13 different cryptocurrencies that are unregistered securities.
The lawsuit had come to Coinbase months after the Wells Notice from March. Following this, Coinbase had retaliated with narrow legal action. Upon Coinbase’s petition, the US Court of Appeals for the Third Circuit responded to the complaint against the SEC regarding the need for clear rules for trading digital assets.
After a series of hearings and motions, the court ordered that SEC will have to respond to Coinbase’s initial legal defense on July 13. Notably, a hearing is currently scheduled for July 13 in the District Court for the Southern District of New York. The hearing date had been moved up due to a defense tactic used by Coinbase, in which the exchange filed its initial answer 40 days before the deadline of Aug. 7.
While Coinbase has shown optimism and courage in the wake of the recent lawsuit, the SEC’s response implies their strong belief in the case. As the case further proceeds, more clarity regarding the case would unfold.