The SEC has countered Coinbase’s claims in a recent filing, arguing that the cryptocurrency exchange was aware of the potential application of federal securities laws to its listings. The SEC filed a response to Coinbase’s reply that the agency lacked jurisdiction to bring a lawsuit against it. Last month, the SEC sued Coinbase, alleging that the company was operating as an unregistered broker, clearinghouse, and exchange, listing several cryptocurrencies that qualify as unregistered securities.
SEC responds to Coinbase’s claims that it lacks jurisdiction
In its filing on Friday, the agency stated its opposition to any motion for judgment that Coinbase might file. It further requested the court to strike down Coinbase’s arguments that the lawsuit violated the major questions doctrine and other concerns.
The agency mentioned that Coinbase claimed to be unaware that its conduct might violate federal securities laws. Coinbase suggested that the agency’s approval of its registration statement in 2021 confirmed the legality of its underlying business activities. However, the agency argued that Coinbase had previously adopted the legal framework established by the U.S. Supreme Court to determine whether certain assets met the requirements of federal securities laws. Additionally, Coinbase discouraged crypto issuers from making statements traditionally associated with securities.
The SEC pointed out that Coinbase’s public filings acknowledged the potential risk that listed assets could be considered securities. This demonstrated that Coinbase understood the possibility of securities laws applying to its conduct and was aware of the rules governing the legality of its actions. Nevertheless, Coinbase made a calculated decision to take on this risk to grow its business.
Rebuttal of flawed arguments and major questions about doctrines
The SEC also outlined its rebuttal to Coinbase’s proposed motion for judgment, highlighting two flawed arguments made by the cryptocurrency exchange. Coinbase claimed that an investment contract required a formal contract, and it argued that investment contracts could only be classified as asset sales if they were traded on secondary markets.
The SEC refuted these arguments, stating that the Howey Test, used to determine whether an investment contract exists, does not necessitate a formal contract. Additionally, the agency emphasized that transactions on secondary markets could still violate securities laws. It cited its recent legal victory against LBRY as an example supporting this argument.
Regarding Coinbase’s major questions doctrine argument, the SEC asserted that the case involved the agency’s exercise of its longstanding authority to enforce statutory requirements. The agency had authorization in 1934 to enforce federal securities laws through civil law enforcement actions. A hearing for the case is scheduled for July 13 in the District Court for the Southern District of New York. The outcome of this lawsuit will have significant implications for the regulatory oversight of cryptocurrency exchanges and the application of securities laws within the crypto industry.
