SEC Counters Coinbase’s Dismissal Motion, Asserts Cryptos as Investment Contracts

The Securities and Exchange Commission (SEC), has firmly challenged Coinbase on their attempt to dismiss the lawsuit. The regulator has reinforced its belief that several cryptocurrencies offered by the exchange qualify as investment contracts under the Howey Test and should be subject to SEC registration.

The SEC has recently filed a response to Coinbase’s motion to dismiss the lawsuit in a New York District Court. In this filing, the SEC countered Coinbase’s claims. It reiterated its position that some of the cryptocurrencies listed on its platform can be classified as investment contracts under the Howey Test, making them subject to SEC registration.

The SEC highlighted that crypto asset issuers encouraged investors, including those purchasing on Coinbase’s platform, to reasonably expect an increase in the value of their investments based on the issuer’s widely disseminated plan to develop and maintain the asset’s value.

Furthermore, the SEC contended that Coinbase has been fully aware that the cryptocurrencies it sells would be deemed securities if they met the criteria outlined in the Howey Test. The regulator claimed that Coinbase acknowledged this in its filings with the SEC.

Additionally, the SEC dismissed Coinbase’s argument that invoked the “major questions doctrine,” which claimed that the SEC had no authority over the crypto market until explicitly granted by Congress. According to the SEC, its actions were within the existing framework of federal securities laws.

Coinbase’s Stance

In response to the SEC’s contentions, Paul Grewal, Coinbase’s chief legal officer, rebuffed the SEC’s arguments. Grewal maintained that the assets listed on their platform were not securities and, therefore, not under the SEC’s jurisdiction. He regarded the SEC’s response as “more of the same old same old.”

This legal battle holds significant importance as it signifies the regulatory tug-of-war over the categorization and oversight of cryptocurrencies. The outcome of this case could set a precedent affecting not only Coinbase but the broader cryptocurrency industry. It will shape the regulations and compliance requirements for exchanges and digital assets.

Miles Jennings, General Counsel for a16z crypto, questioned the SEC’s motion and pointed out what he perceived as significant gaps. He argued that even if the court accepted the SEC’s main argument regarding investment contracts, their definition was overly broad.

The SEC’s reliance on the Terraform Labs ruling to challenge the Ripple case has sparked discussions within the crypto industry. The Terraform Labs ruling has introduced a fresh perspective on the regulatory landscape surrounding cryptocurrencies, leading to concerns about the implications of previous rulings, especially the Ripple case, which was seen as a win for the crypto industry.