Coinbase argued in a legal filing on Wednesday that a recent U.S. Supreme Court judgment on student debt cancellation strengthens its fight against charges of operating an unregistered securities venue. The Securities and Exchange Commission (SEC) filed a lawsuit on June 6, accusing Coinbase of violating federal securities law. However, Coinbase maintains that the lawsuit is an attempt by the regulator to exert excessive control over the digital asset industry, citing a recent Supreme Court ruling as precedent.
The Supreme Court ruling, issued on June 30, upheld the position that the Secretary of Education had exceeded their authority by canceling approximately $430 billion in student debt. This ruling emphasized the legal doctrine that government agencies must have clear support from Congress for decisions of significant economic or political importance. Coinbase argues that the case, referred to as Biden v. Nebraska, has implications for its own situation since lawmakers have yet to establish clear regulations for the cryptocurrency industry.
In its legal filing, Coinbase asserts that Congress has not granted the SEC the “clear congressional authorization” required to exercise regulatory authority over digital assets. The company highlights ongoing congressional considerations of regulatory frameworks for the digital asset industry, including a bipartisan bill favoring the Commodity Futures Trading Commission (CFTC) over the SEC. The SEC contends that digital assets such as Solana (SOL), Cardano (ADA), and Polygon (MATIC) are regulated securities and accuse Coinbase of knowingly operating without proper registration. Similar allegations have been made against Binance and Bittrex, both of which deny the charges, claiming the SEC lacks jurisdiction.
A preliminary hearing is scheduled for later today in a New York courtroom, marking the beginning of what could be a lengthy trial. In a separate case, Coinbase recently obtained a Supreme Court victory when judges ruled that a user’s lawsuit against the exchange could not proceed until after an appeal.
Coinbase responds to SEC’s motion to strike defenses
In response to a letter from the Securities and Exchange Commission (SEC) announcing its intent to file a motion under Federal Rule of Civil Procedure 12(f) to strike several of Coinbase’s defenses, Coinbase filing on Wednesday argues against the SEC’s proposed motion, asserting that it fails to meet the required standards.
Coinbase contends that motions to strike should only be granted when there are strong reasons to do so. However, the company argues that the SEC’s proposed motion does not satisfy any of the elements necessary for such a motion to succeed. Coinbase maintains that its defenses, including those based on the major questions doctrine, abuse of discretion, equitable estoppel, unclean hands, and laches, have legal and factual grounding.
The major questions doctrine, as previously invoked by Coinbase, prevents the SEC from exercising extensive regulatory authority over the digital asset industry without clear congressional authorization. Coinbase emphasizes that Congress is actively considering regulatory structures for the industry and has not yet delegated such regulatory authority to the SEC. Coinbase also cites a recent Supreme Court ruling in Biden v. Nebraska as further support for its position.
Coinbase’s other defenses, including abuse of discretion, equitable estoppel, unclean hands, and laches, are based on the SEC’s alleged regulatory overreach, reversing course without sufficient notice, and causing undue prejudice to Coinbase and its shareholders. The company argues that these defenses share the same factual basis as its fair notice defense, which the SEC does not propose to strike.
Given the limited potential impact of the SEC’s motion to strike and the importance of Coinbase’s potentially case-dispositive motion under Rule 12(c), the company requests that its motion be promptly addressed without delay caused by additional briefing on the SEC’s motion.
Future implications for the cryptocurrency industry
The ongoing legal battle between Coinbase and the SEC holds significant implications for the broader cryptocurrency industry. The outcome of the trial will not only determine Coinbase’s fate but may also shape the regulatory landscape for digital assets in the United States. With lawmakers considering various digital asset laws, including a bill favoring the CFTC over the SEC, the industry awaits clearer regulatory frameworks.
The hearing today will mark the initial phase of what could be a protracted legal process, potentially spanning several years. As the parties prepare to present their arguments, the crypto community and industry stakeholders will closely monitor the proceedings, as the trial’s outcome could have far-reaching consequences for the future of digital asset trading and regulation.
