Coinbase Files Appeal Against SEC Lawsuit Decision

Coinbase has filed a motion to appeal a judge’s ruling from last month that allowed the SEC’s lawsuit against the company to move forward. Coinbase’s chief legal officer, Paul Grewal, announced the appeal in an X post today. The appeal, if granted, would enable the Second Circuit Court to review the US Securities and Exchange Commission’s (SEC) authority. This review pertains specifically to classifying certain digital asset transactions as investment contracts.

Today @Coinbase filed a brief asking the Court’s permission to seek an interlocutory appeal in our @SECGov case on this controlling question: whether an “investment contract” requires something contractual – we think it does, the SEC disagrees. 1/5 https://t.co/M5HgMQxCLF

— paulgrewal.eth (@iampaulgrewal) April 13, 2024

Coinbase’s appeal focuses on whether purchases of digital assets qualify as “investment contracts” under SEC rules. Resolving this issue would have widespread implications across the digital asset industry. Coinbase seeks a clear ruling from a higher court to end the uncertainty.

According to Coinbase, the definition of an investment contract has included the requirement of post-sale obligations for nearly a century, as upheld by both the Supreme Court and the Second Circuit. However, the SEC has recently pursued a new interpretation, suggesting that merely integrating digital assets into a token’s ecosystem could constitute an investment contract.

Coinbase’s legal defense argues that in the 90 years since the federal securities laws were enacted, neither the Supreme Court nor the Second Circuit found an investment contract without a post-sale obligation. But in a recent blitz of enforcement actions against the digital asset industry, the SEC has advanced the theory that no such obligation is required.”

This approach has sparked widespread debate among lawmakers, regulators, and industry participants. According to Coinbase, even SEC Commissioners have acknowledged the regulatory uncertainty plaguing the crypto sector. The firm argues that the SEC’s broad interpretation creates uncertainty in an industry with exponential growth and economic influence.

Coinbase Challenges SEC, Seeks Second Circuit Appeal

Coinbase’s defense challenges the SEC’s claims, asserting that the transactions in question lack the traditional elements of an investment contract. The company believes the Second Circuit’s appeal is an appropriate way to provide urgently needed guidance on this important legal matter.

The legal defense states, “The application of Howey to digital asset transactions raises hard questions. Members of Congress, Senators, and regulatory agencies have divided in answering them, bespeaking the difficulty of the subject matter. As a result of these divisions, a cloud of legal uncertainty hangs over the digital asset industry. This case offers the ideal vehicle for the Second Circuit to quickly and cleanly remove it.”

This motion comes after a US court recently rejected Coinbase’s appeal in a lawsuit brought by the SEC last year. Judge Failla found the SEC’s evidence sufficient to require Coinbase’s exchange, broker, and clearinghouse registration. She concluded that Coinbase’s wallet product wasn’t connected to the SEC’s securities charges and sided with them. Following the court’s dismissal, Grewal said Coinbase would continue its legal battle against the SEC.

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