On October 3, the US Securities and Exchange Commission (SEC) filed a petition with a New York District Court, asking the court to reject Coinbase’s motion to dismiss the lawsuit. The regulator stated that some of the crypto assets listed on the exchange qualify as investment contracts under the Howey Test. As a result, these cryptocurrencies must undergo SEC registration.
The regulator emphasized that Coinbase did not register these assets despite being aware that they were classified as securities.
“Each crypto asset issuer invited investors — including purchasers on Coinbase’s platform — reasonably to expect the value of their investment to increase based on the issuer’s broadly-disseminated plan to develop and maintain the asset’s value.”
Coinbase has previously tried to argue the “Major Questions Doctrine,” claiming that the SEC didn’t have power over the crypto market unless Congress explicitly gave it that authority. The Major Questions Doctrine refers to Supreme Court decisions that indicate that whenever a regulatory agency intends to settle an important national issue, the agency’s activities must be supported by Congress.
However, the SEC denied this claim, stressing that it has not taken any new powers beyond what federal securities laws allow it to do.
In an Oct. 3 X (Twitter) post, Paul Grewal, Coinbase’s Chief Legal Officer, said the regulator’s arguments were “more of the same old same old.” He also asserted that the assets listed on the exchange “are not securities” and fall outside the SEC’s jurisdiction.
The @SECgov just filed its opposition to our motion to dismiss their case against @Coinbase. It’s more of the same old same old. But don’t just take my word for it – take a look for yourself. 1/7 https://t.co/QMdkRoiq0V
— paulgrewal.eth (@iampaulgrewal) October 3, 2023
Miles Jennings, General Counsel of a16z crypto, also claimed that the SEC’s motion “has a lot of holes.” Jennings added that the case “should still fail” even if the court were to agree with the SEC’s basic argument around investment contracts. He says the SEC’s definition of an investment contract has “endless breadth.”
Coinbase Moves To Dismiss Lawsuit
In June, the SEC filed a lawsuit against Coinbase, alleging the company violated federal securities laws by functioning as an unregistered exchange, broker, and clearing agency for digital assets that were securities.
On Aug. 4, the exchange filed a motion to dismiss the SEC’s complaint. The firm claimed that the regulator had exceeded its authority in bringing charges against the platform. Moreover, the cryptocurrencies listed on its platform should not be categorized as securities and, thus, do not fall under the SEC’s jurisdiction, Coinbase stated.