9-7-2023 (NEW YORK) The U.S. Securities and Exchange Commission (SEC) argued in a new filing on Friday that Coinbase had acknowledged the possibility of federal securities laws applying to its listings years ago. The regulator’s response was submitted in relation to Coinbase’s filing, which contended that the agency lacked sufficient jurisdiction to bring a lawsuit against it. The SEC had sued Coinbase a month prior, alleging that the platform operated as an unregistered broker, clearinghouse, and exchange by listing at least 13 different cryptocurrencies classified as unregistered securities.
In its response, the SEC stated that it would oppose any motion for judgment filed by Coinbase and requested the court to dismiss Coinbase’s arguments concerning the violation of the major questions doctrine and other concerns.
The SEC’s filing highlighted Coinbase’s claim that it was unaware of the risk of violating federal securities laws, given its status as a multi-billion-dollar entity guided by sophisticated legal counsel. The regulator emphasized that Coinbase had previously adopted the legal framework established by the U.S. Supreme Court to assess whether specific cryptocurrencies met the requirements of federal securities laws. Additionally, Coinbase had “explicitly discouraged” crypto issuers from making statements typically associated with securities. The SEC further noted that Coinbase’s public filings acknowledged the potential risk that listed assets could be considered securities.
The SEC contended that Coinbase understood the potential applicability of securities laws to its conduct and was aware of the relevant rules governing the legality of its operations. Nonetheless, Coinbase made a calculated decision to assume this risk in order to expand its business, the SEC argued.
The SEC also provided a preview of its counterarguments to Coinbase’s proposed motion for judgment, highlighting two flawed arguments made by the crypto exchange. Coinbase asserted that an investment contract required a formal contract, and it claimed that investment contracts were only applicable to asset sales traded on secondary markets. The SEC countered by stating that the Howey Test, used to determine investment contracts, does not necessitate a formal contract, and transactions on secondary markets can still potentially violate securities laws. The SEC cited its recent legal victory against LBRY as an example supporting this argument.
Regarding Coinbase’s major questions doctrine argument, the SEC asserted that the case did not fall under the purview of major questions, as it involved the SEC exercising its longstanding authority to enforce statutory requirements. In 1934, Congress had authorized the SEC to enforce federal securities laws through civil law enforcement actions.
A hearing for the case is currently scheduled for July 13 in the District Court for the Southern District of New York.
