The ongoing legal battle between cryptocurrency exchange Coinbase and the United States Securities and Exchange Commission (SEC) has taken a new turn. In its final attempt to dismiss the lawsuit filed by the SEC, Coinbase has argued that the regulatory body overstepped its authority when classifying Coinbase-listed cryptocurrencies as securities. The exchange contends that the SEC’s definition of a security is too broad and that the cryptocurrencies in question do not fall under its purview.
Coinbase, in its filing on October 24th in a New York District Court, firmly criticized the SEC’s actions. The exchange stated that the SEC’s power is limited to securities transactions and that not every capital exchange for the purpose of gain qualifies as such. Coinbase emphasized that the transactions conducted over its platform are only considered securities transactions if they involve “investment contracts”, which the cryptocurrencies listed on the exchange do not. The exchange accused the SEC of pursuing a “radical expansion of its own authority”, which is a violation of the major questions doctrine that reserves such power for Congress.
Echoing Coinbase’s concerns, the exchange’s chief legal officer, Paul Grewal, argued that the SEC’s definitions have no limiting function. This implies that the regulatory body’s authority could potentially extend to all forms of investment activity, which would be an infringement upon the proper separation of powers. Coinbase believes that such expansive authority should only be granted by Congress and not unilaterally assumed by the SEC.
Coinbase’s recent filing is a response to the SEC’s rebuttal on October 3rd, where the regulator rejected the exchange’s dismissal motion. The SEC reiterated its stance that the cryptocurrencies listed by Coinbase were investment contracts according to the Howey test and thus fell under the jurisdiction of securities laws. The SEC initially sued Coinbase on June 6th, accusing the exchange of violating U.S. securities laws by listing tokens that it considers securities without registering with the regulatory body. Coinbase filed a motion for a judgment on June 29th, arguing that the SEC was abusing its power and violating Coinbase’s due process rights.
Judge Katherine Polk Failla, who presides over the lawsuit, may now request oral arguments from Coinbase and the SEC before issuing a judgment. The judge could choose to dismiss the case, allow it to proceed, or order that it be heard in front of a jury. The outcome of this legal battle will have significant implications for the cryptocurrency industry as a whole, as it will determine the extent of the SEC’s authority over such assets and exchanges.
Coinbase’s firm stand against the SEC’s classification of cryptocurrencies as securities highlights the ongoing struggle between the cryptocurrency industry and regulators. The exchange has raised valid concerns regarding the SEC’s overreach of authority and the potential infringement on the separation of powers. With the legal proceedings ongoing, the outcome of this case will undoubtedly shape the regulatory landscape for cryptocurrencies in the United States.
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