Coinbase vs SEC: Exchange Responds to SEC’s Lawsuit in Court, Says Regulator Is Overreaching

UTC by Mayowa Adebajo · 3 min read
Coinbase vs SEC: Exchange Responds to SEC’s Lawsuit in Court, Says Regulator Is Overreaching
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The Thursday filing shares a detailed explanation of the company’s stance on the subject matter.

The ongoing legal battle between the Coinbase exchange and the US Securities and Exchange Commission (SEC) has taken a new dimension. This follows after Coinbase issued its first legal response to SEC’s lawsuit early Thursday.

Coinbase vs SEC

In the response, the firm argues that the SEC has gone beyond its jurisdiction by coming at the crypto exchange in the first place. It further claimed that none of the digital assets listed on its platform falls within SEC’s purview.

As Coinspeaker earlier reported, the SEC sued the Coinbase exchange on June 6. At the time, the top regulator alleged that the exchange was selling about a dozen unregistered securities.

Now, however, Coinbase has responded that the assets highlighted by the SEC are not investment contracts. For this, the firm, therefore, says they do not qualify as securities.

Meanwhile, Coinbase’s legal response does not exactly come as a surprise. The company has pushed the argument several times in the past. However, the Thursday filing now shares a detailed explanation of the company’s stance on the subject matter.

Coinbase Explains Why Digital Assets Are Not Securities

Citing the Supreme Court’s Howey case as an example, the American exchange said none of the assets on its secondary market platform can be established as having any semblance to when a promoter sells an asset tied to a contract.

The argument further highlights how issuers of tokens do not have a direct obligation to investors. According to the filing, investors only receive value from trading these assets on Coinbase’s secondary market exchange and not in the businesses that issue them. Therefore, such transactions can not be said to be securities transactions, the filing said.

Additionally, Coinbase also argued that there is the issue of undue process on the part of the regulator as well. That is, even if the SEC’s claims that it has authority over the said assets are correct, the SEC abused the process by choosing enforcement action over rulemaking. Besides, the exchange also noted that SEC Chair Gary Gensler only changed his position on the regulator’s authority over crypto between taking office in April 2021 and mid-2022. That is despite that the company repeatedly asks for guidance and clear regulations. Part of the filing reads:

“For years, Coinbase has begged the SEC for guidance about how it thinks the federal securities laws map onto the digital asset industry as the SEC’s actions reflected an escalating but undisclosed change in its own view of its authority.”

The rest of the filing contains a point-by-point response to all the allegations contained in SEC’s lawsuit.

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