On Oct. 4, the U.S. Securities and Exchange Commission (SEC) submitted a court filing opposing Coinbase’s attempts to dismiss a suit filed by SEC, which alleges that the crypto exchange has violated multiple securities laws.
Coinbase first attempted to have the regulator’s charges thrown out in August. At that time, it claimed that none of the services offered on its platform fall under securities law.
The SEC has now countered this by asserting that Coinbase’s role in intermediating transactions in investment contracts satisfies the Howey Test, which serves as a litmus test for investment contracts under American securities law.
The regulator addressed the issue as follows:
“Ignoring [the application of the Howey test], Coinbase instead asks the Court to conclude that crypto asset transactions on its platform can never involve ‘investment contracts.’”
To this end, Coinbase intends to argue that investment contracts necessarily include common law contractual agreements — something that it does not rely on.
The SEC said that this is not a requirement. It said that courts have used the Howey test to apply securities laws to investments made outside of formal contracts, but acknowledged that courts sometimes take contractual undertakings into consideration.
Coinbase shouldn’t be surprised by charges
The SEC otherwise complained that Coinbase is attempting to blame it for its current situation through alleged shortcomings in the regulatory process. The regulator countered that the lawsuit “cannot really come as a surprise,” writing:
“[Coinbase] has known all along that a crypto asset bought and sold on its trading platform is a security if it meets the Howey test—as it recognized on its website as far back as 2016 and in its filings with the SEC, as well as in … efforts to analyze assets it was considering listing … using the Howey test.”
The SEC contested Coinbase’s attempts to invoke the major questions doctrine. Coinbase intends to argue through this doctrine that Congress has not explicitly delegated authority to the SEC on the matters at hand. The SEC said in its filing that it has not assumed any new powers and is working within existing federal securities law.
The agency also suggested that Coinbase’s attempts to cite a recent ruling in favor of Ripple’s token sales do not apply in the current circumstances. It also contested Coinbase’s attempts to distinguish itself from past cases against LBRY, Kik, and Telegram, each of which saw the SEC win a settlement against the targeted company.
The SEC originally filed its case against Coinbase on June 6. Coinbase is one of just a few crypto companies that have chosen to fight the SEC rather than settle.
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