SEC Urges Judge to Deny Coinbase’s Motion to Dismiss Lawsuit

In a recent legal development, the United States Securities and Exchange Commission (SEC) has vehemently opposed Coinbase’s attempt to dismiss a lawsuit filed by the regulatory body. The SEC’s response, submitted on October 3 in a New York District Court, refutes Coinbase’s claims and restates the SEC’s position that certain cryptocurrencies featured on the platform qualify as investment contracts under the Howey Test, making them subject to SEC registration.

According to the SEC, crypto asset issuers, including those on Coinbase’s platform, encouraged investors to anticipate the growth of their investments based on broadly disseminated plans to enhance and sustain the asset’s value. The SEC argued that Coinbase was well aware that cryptocurrencies meeting the Howey Test criteria qualified as securities, a fact the exchange acknowledged in its submissions to the SEC.

The SEC also brushed off Coinbase’s attempt to invoke the “major questions doctrine,” which argued that the SEC lacked authority over the crypto market until authorized by Congress. The SEC asserted that it was not assuming any new powers beyond what the existing federal securities laws expressly permitted.

Coinbase’s Chief Legal Officer, Paul Grewal, responded to the SEC’s arguments in an October 3 Twitter post, dismissing them as “more of the same old same old.” Grewal maintained that the assets listed on Coinbase were not securities and fell outside the SEC’s jurisdiction. He went further, suggesting that the SEC’s logic would categorize a wide range of items, including Pokemon cards, stamps, and Swiftie bracelets, as securities.

Adding to the fray, Miles Jennings, general counsel at a16z crypto, criticized the SEC’s motion in a post, highlighting perceived weaknesses in its arguments. Jennings contended that even if the court were to accept the SEC’s primary argument about investment contracts, the case should still fail. He argued that the SEC’s definition of an investment contract was excessively broad, rendering the case untenable.

As this legal battle unfolds, it raises crucial questions about the regulatory boundaries in the crypto market. The outcome of this case could significantly impact how cryptocurrencies are classified and regulated, shaping the future landscape of digital asset trading and investment.

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