Coinbase Responds to SEC Lawsuit with Dismissal Motion
In the escalating legal conflict between Coinbase and the United States Securities and Exchange Commission (SEC), the American cryptocurrency exchange has filed a motion to dismiss the SEC’s lawsuit.
SEC’s Alleged Overreach in Securities Interpretation
The motion, submitted to the U.S. District Court for the Southern District of New York on Thursday, June 29, sees Coinbase questioning the SEC’s application of securities laws. The firm asserts that the regulatory body is overextending its legal purview.
Plaintiff Lacks Valid Legal Claim, Argues Coinbase
This action signifies Coinbase’s unyielding stance in challenging the SEC’s lawsuit. The motion maintains that, even assuming the truth of every allegation, the plaintiff, in this case, the SEC, does not possess a valid legal claim. The cryptocurrency exchange’s legal team argued:
“Even if the SEC were correct that the assets and services it identifies are within the scope of its existing regulatory authority, this [legal] action must be dismissed on independent grounds that it violates Coinbase’s due process rights and constitutes an extraordinary abuse of process.”
The SEC’s Lawsuit Claims
The SEC’s lawsuit accuses Coinbase of enabling unregistered trading in 12 digital tokens classified as securities.
Coinbase’s Counter-Argument: The SEC’s Application of Securities Law Is Unwarranted
However, Coinbase disputes this accusation, contending that the SEC is unjustifiably applying securities laws to certain digital tokens, straying significantly from established legal norms. Paul Grewal, chief legal officer at Coinbase, took to Twitter on June 29, asserting that the SEC’s accusations “go far beyond existing law” and therefore ought to be dismissed.
What Tokens are Considered Securities?
According to the SEC, a security encompasses investment contracts, which, as per the Supreme Court’s Howey test, include transactions where people invest money in a common enterprise and expect profits primarily from others’ efforts. The SEC identified 12 crypto tokens as securities in its lawsuit, including Solana, Cardano, Polygon, The Sandbox, Flow, Internet Computer, Near, and Dash.
Coinbase’s Defense: SEC’s Prior Approval for Its Registration Statement
Coinbase’s legal counsel further argued that in 2021, the SEC granted approval for Coinbase’s registration statement, thus allowing the company to sell its shares to investors upon going public. This approval came after an intensive review process spanning several months, which entailed comprehensive discussions with Coinbase. Consequently, Coinbase was permitted to trade over 240 tokens on its spot exchange, six of which are currently under dispute.