SEC’s Utilization of Terraform Ruling Implies Strategic Approach in Coinbase Dismissal Motion

Recent developments in the legal landscape are offering insights into how the United States Securities and Exchange Commission (SEC) might approach its case against crypto exchange Coinbase. The SEC’s lawsuit against crypto miner Green United has given rise to comparisons, particularly in relation to the way the Terraform Labs case was handled.

The Terraform Labs case saw the SEC secure a victory on July 31st when District Judge Jed Rakoff denied the motion to dismiss filed by Terraform Labs. The judge’s ruling effectively rejected the “major questions doctrine” argument that had been presented by Terraform Labs. Interestingly, this same argument has been adopted by other defendants in cases involving the SEC, including Green United and crypto exchange Coinbase.

In a subsequent filing dated August 4th, the SEC made a compelling observation. It highlighted the Terraform Labs ruling as providing further grounds for discrediting Green United’s use of the “major questions doctrine” and fair notice defenses. The SEC’s letter elaborated on the matter, stating:

“The court rejected defendants’ arguments that the ‘Major Questions Doctrine’ and the Due Process Clause ‘prevent the SEC from alleging the company’s digital assets to be ‘investment contracts.’ Accordingly, Terraform Labs is relevant to this matter because it provides additional authority for rejecting Defendants’ ‘Major Questions Doctrine’ and fair notice defenses.”

This strategic move by the SEC to invoke the Terraform Labs precedent suggests potential implications for its strategy in the Coinbase case. Notably, Coinbase submitted its own motion to dismiss the SEC lawsuit on August 4th, prompting speculation about the applicability of the major questions doctrine to the regulatory landscape.

In its motion to dismiss, Coinbase argued that the major questions doctrine was pertinent as the SEC attempted to exert control over the secondary market for crypto trading. This doctrine derives from a 2022 Supreme Court ruling that emphasized Congress’ intention to be the decision-maker when it comes to policy matters. This stance means that regulatory agencies need clear authorization from lawmakers for their regulatory actions.

Examining the Terraform case, the judge underscored the doctrine’s specialized nature, suggesting it was not intended to disrupt the routine functions expected of administrative agencies like the SEC.

By referencing the Terraform ruling, the SEC is leveraging previous legal outcomes to support its arguments in ongoing cases. This tactic mirrors its approach in April when it cited a longstanding court precedent to underline its position in the SEC vs. Ripple Labs case.

As the legal landscape unfolds, these cross-references between cases offer insights into how regulatory bodies are strategically building their arguments and seeking precedent to navigate the complex terrain of cryptocurrency regulation.

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