In a significant development in the ongoing legal battle between Coinbase and the U.S. Securities and Exchange Commission (SEC), the American cryptocurrency exchange has filed a motion to dismiss the SEC’s complaint. Coinbase argues that the digital assets listed on its platform do not fall under the SEC’s jurisdiction and disputes the regulator’s claim that several cryptocurrencies offered on its platforms are unregistered securities.
The SEC had filed a lawsuit against Coinbase in early June, alleging that a dozen cryptocurrencies offered on the exchange’s wallet or trading platforms were unregistered securities. Coinbase’s 177-page response, filed on Thursday, June 29, counters this claim by asserting that these cryptocurrencies do not qualify as investment contracts and therefore should not be classified as securities.
Coinbase Denies SEC Jurisdiction
Coinbase claims that cryptocurrencies traded on its secondary market platform are not part of an arrangement where a promoter sells an asset tied to a contract. The company points to the Supreme Court’s Howey case in support of its position.
According to Coinbase, the issuers of these tokens have no obligations to investors, underscoring the argument that transactions conducted on Coinbase’s secondary market are not securities. The value derived from these transactions lies in the assets themselves and not in the underlying companies that generated them, according to the filing:
None of the assets the SEC has now identified are in fact securities, and for that and other reasons, secondary transactions in those assets are also not securities. […] None of these satisfy Howey’s definition of an “investment contract”.
In arguing otherwise, the SEC has advanced a novel construction of the operative term that is divorced from […] statutory context the Supreme Court and the Commission itself long ago agreed must inform the term’s meaning.
Coinbase also highlights that during his tenure, SEC Chairman Gary Gensler has changed his position on the regulator’s powers over cryptocurrencies: In addition, it highlights Coinbase’s repeated calls for regulation. The motion also notes that Congress has begun to explore the issue of crypto regulation.
The motion to dismiss asserts that even if the SEC were correct in asserting its regulatory authority over said assets and services, the case must be dismissed due to violations of Coinbase’s due process rights and an alleged abuse of process.
The exchange argues that the company voluntarily complied with the rules of various overlapping regulators, sought guidance from the SEC and followed limited formal guidance from the SEC, senior SEC staff and the courts regarding the application of securities laws to the cryptocurrency industry.
Showdown In 7 Weeks?
In a separate document filed with the superior court judge, Coinbase contends that its due process rights were violated when the SEC initiated the action. The company claims that the SEC’s action violates the “major questions” doctrine:
Even were the proffered construction colourable, the major questions doctrine would counsel against its adoption by this Court and in favour of deference to Congress’s legislative prerogative to tackle for itself major policy decisions affecting substantial industry segments.
Coinbase is asking the judge for permission to file a motion for judgment and proposing a seven-week timetable for its motion, the SEC’s opposition and its own response to the opposition.
Paul Grewal, Coinbase’s chief legal officer (CLO), expressed the company’s stance on Twitter, saying, “Coinbase today filed our response and notice of intent to file a motion to dismiss the SEC proceeding against us. You can read our response for yourself – our arguments speak for themselves.”
Grewal emphasised Coinbase’s willingness to engage in dialogue with any regulator, including the SEC, and its belief that new laws and rulemaking are the appropriate means to move forward. He also emphasized that the claims made in the lawsuit go beyond existing law and should be dismissed.
At press time, the COIN share price managed to break above the 200-day EMA, trading at $70.75.
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