SEC Counters Coinbase’s Jurisdiction Claim, Highlighting Prior Awareness of Securities Laws
The U.S. Securities and Exchange Commission (SEC) has responded to Coinbase‘s claim that it lacks jurisdiction to bring a lawsuit against the company, arguing that Coinbase had acknowledged the potential application of federal securities laws to its listings years ago. In a recent filing, the SEC opposed any potential motion for judgment filed by Coinbase and requested the court to dismiss Coinbase‘s arguments, including those related to the major questions doctrine.
The SEC had sued Coinbase a month ago, alleging that the company was operating as an unregistered broker, clearinghouse, and exchange, specifically listing at least 13 cryptocurrencies that are considered unregistered securities. Coinbase had argued that the SEC lacked sufficient jurisdiction to file the lawsuit. However, the SEC countered by stating that Coinbase, as a multi-billion-dollar entity with sophisticated legal counsel, claimed unawareness of the risk of violating federal securities laws. The SEC further highlighted that Coinbase had previously adopted the legal framework established by the U.S. Supreme Court to evaluate whether certain cryptocurrencies met the requirements of federal securities laws, while discouraging crypto issuers from making statements traditionally associated with securities.
Moreover, Coinbase’s own public filings had acknowledged the possibility that listed assets could be considered securities, indicating their awareness of the potential application of securities laws. The SEC argued that Coinbase consciously decided to take on the risk of operating within this legal context to foster its business growth.
Regarding Coinbase’s proposed motion for judgment, the SEC identified two flawed arguments made by the crypto exchange. Coinbase claimed that an investment contract must include a formal contract, and investment contracts can only be considered asset sales if they are traded on secondary markets. However, the SEC refuted these claims, stating that the Howey Test, which determines whether an investment contract exists, does not necessitate a formal contract. Additionally, transactions on secondary markets can still potentially violate securities laws. The SEC cited its recent legal victory against LBRY as an example supporting this second argument.
The SEC also disputed Coinbase’s major questions doctrine argument, emphasizing that the case involves the SEC’s enforcement of statutory requirements. Congress authorized the SEC in 1934 to enforce federal securities laws through civil law enforcement actions.
Currently, a hearing is scheduled for July 13 in the District Court for the Southern District of New York.
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