The Securities and Exchange Commission is pushing ahead with its litigation against Coinbase, raising the stakes further in the case against the biggest US crypto exchange.
The SEC
Industry advocates and critics alike are looking at the Coinbase case for answers to longstanding questions about the SEC's jurisdiction over digital assets. The agency under Chair Gary Gensler has argued that most tokens are subject to SEC rules and that platforms where they trade should be registered with the agency.
Gary Gensler, chair of the U.S. Securities and Exchange Commission In June, the SEC alleged that Coinbase for years evaded its rules by illegally operating an unregistered exchange, brokerage and clearing agency. The case stands out because of the platform's high-profile status in the US and because it goes to the heart of the SEC's legal claims over much of the asset class.
On Tuesday, the regulator spooled out further its arguments that assets traded on Coinbase amounted to securities. "Each crypto asset issuer invited investors, including purchasers on Coinbase's platform — reasonably to expect the value of their investment to increase based on the issuer's broadly-disseminated plan to develop and maintain the asset's value," wrote the agency.
The SEC argued that public statements by issuers that would have "led investors, including those on Coinbase's platform, to reasonably expect profits from the issuers' efforts." The agency also called Coinbase's view that crypto asset sales on secondary market platforms are never investment contracts "unsupported and nonsensical."
In response, Coinbase's chief legal officer, Paul Grewal, blasted the agency's position and said his company would file a response later this month. "It's more of the same old same old," he said on the social media platform X (previously known as Twitter), referring to the SEC's arguments.
Grewal reiterated Coinbase's position that it is not offering securities, and that the SEC should write new regulations for crypto rather than bringing enforcement actions.
The @SECgov just filed its opposition to our motion to dismiss their case against @Coinbase. It’s more of the same old same old. But don’t just take my word for it – take a look for yourself. 1/7 https://t.co/QMdkRoiq0V
— paulgrewal.eth (@iampaulgrewal) October 3, 2023
Tuesday's back-and-forth stems from Coinbase arguing in August that the regulator had overstepped and pointed to as evidence a recent decision by another federal judge who ruled that sales of Ripple Labs' XRP to the general public on exchanges didn't amount to securities offerings.
To decide whether an asset is covered by its securities rules, the SEC relies on a test laid out in a 1946 Supreme Court case. Crypto advocates say many digital assets don't meet that standard and that the SEC should provide revised rules to take into account the unique characteristics of the asset class.
The case is Securities and Exchange Commission v. Coinbase Inc., 23-cv-04738, US District Court, Southern District of New York (Manhattan).
