Coinbase Challenges SEC’s Allegations Of Securities Violations

On Wednesday, Coinbase, a leading global cryptocurrency exchange, made a strong case to dismiss the allegations of securities violations brought against it by the U.S. Securities and Exchange Commission (SEC). The SEC had filed the suit in June 2023, just a day after similar action against Binance, the world’s largest crypto exchange by volume.

Coinbase’s Defense

Coinbase’s chief legal officer anticipates the possibility of new cryptocurrency regulations emerging in response to the SEC lawsuits. The SEC’s claims against Coinbase include the assertion that 13 cryptocurrencies available for trading on the exchange are securities, encompassing major tokens such as Solana, Cardano, and Polygon. Interestingly, the Binance suit also identified 12 crypto assets as securities, with six of them overlapping with those mentioned in the Coinbase case: SOL, ADA, MATIC, FIL, SAND, and AXS.

Legal Battle

Coinbase has formally requested New York District Judge Katherine Polk Failla to dismiss the suit, arguing that cryptocurrencies fall outside the SEC’s jurisdiction as they are not akin to shares in companies (stocks). The exchange, along with other crypto firms, contends that the SEC has exceeded its authority. During the Manhattan court hearing, Judge Failla probed the SEC, seeking an explanation of the specific elements of crypto assets that constitute investment contracts. She expressed concerns about the SEC’s apparent intent to broaden the definition of what qualifies as a security.

SEC’s Position

Patrick Costello, an SEC assistant chief litigation counsel, argued that crypto assets, often linked to a blockchain network or “enterprise,” bear similarities to investment contracts. The agency maintained that Coinbase is attempting to establish its own legal framework, akin to the Howey test, to determine the nature of an asset as an investment contract.