Coinbase Fights For SEC Case Dismissal

Judge Failla was skeptical of some of the SEC's key arguements.

How likely is the judge to throw out the SEC's case?

A US court is currently deciding whether to throw out the SEC's case against Coinbase. The regulator claims that transactions in a number of cryptos constitute trading in unregistered securities. Coinbase's lawyers have been fighting the case at every stage, and are currently attempting to have it dismissed in the US District Court for the Southern District of New York.

While it's still early days, and some experts have suggested that the strategy has only an outside chance of succeeding, initial indications are that the judge is critical of the SEC's stance, and the way it has treated Coinbase.

Securities Law Violations

The SEC has accepted that tokens in themselves do not constitute securities. However, the SEC is arguing that trades on Coinbase are securities transactions, since buyers are looking to share the gains from a token ecosystem (thereby meeting a key plank of the Howey Test).

Coinbase argues that these are trades on the secondary market, and there is no contract.

Ripple XRP Sales Do Not Constitute Offer of Investment Contract
XRP sales to retail investors did not constitute offerings of unlicensed securities, rules the court.

The SEC's lawyers stated that ownership of the token is the "key that gets you into the ecosystem. The token is worthless without the ecosystem". Coinbase's lawyers argue that there is no contractual obligation that constitutes an enforceable promise. Judge Katherine Polk Failla will make a decision in the coming weeks.

Holding The SEC To Account

While there's currently no indication of which way Judge Failla will rule, her words did suggest that the SEC had been pushing its luck. For example, she questioned the agency's logic about what made a token a security, asking whether accepting their overly-broad definition would turn collectibles like Beanie Babies into securities too.

Failla also pointed out other issues, such as the apparent lack of understanding of the technology by the SEC, and its "attempt to usurp the role of Congress". As crypto lawyer Jake Chervinsky states, "This doesn't mean Coinbase will necessarily win its motion for judgment on the pleadings. But it does display the true emptiness of policymakers' claims that 'the law is clear' and 'the industry just doesn't want to comply.'"

If nothing else, the case highlights the lack of clarity that currently exists, and raises awareness of the SEC's overreach of the digital asset sector.


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