Coinbase has put forth a motion seeking to dismiss a lawsuit brought against it by the Securities and Exchange Commission (SEC). The regulatory body has accused the company of unlawfully operating as an unregistered national securities exchange, broker, and clearing agency. However, Coinbase argues that since it does not trade in securities, the SEC doesn’t hold jurisdiction over its activities.
Coinbase’s Chief Legal Officer, Paul Grewal, outlined in a series of tweets, “Our principal contention is straightforward – we do not trade ‘investment contracts’ as interpreted by years of Supreme Court and other authoritative precedent.” Grewal further criticized the SEC for disregarding this precedent, accusing it of violating due process, overstepping its authority, and deserting its prior interpretations of securities laws. He stated that this disregard for precedent represents an overreach of the SEC’s basic authority as defined by Congress.
The SEC lodged the lawsuit against Coinbase back in June. It alleges that the firm has profited in the billions since at least 2019 by “illegally enabling the purchase and sale of crypto-asset securities.”
In its dismissal motion, Coinbase references a distinct SEC case in which a judge ruled in July that the sales of Ripple Labs’ XRP on exchanges were not considered securities (however, institutional sales of XRP were found to be under the jurisdiction of securities regulations).
Nonetheless, this argument may not tilt in Coinbase’s favor. Recently, another judge contradicted the Ripple ruling and stated that the SEC could advance its case against Terraform Labs and its CEO, Do Kwon. This includes accusations related to exchange-based sales and allegations of multi-billion dollar fraud. As highlighted by Bloomberg, the rulings in both the Ripple and Terraform cases do not set a binding precedent for the Coinbase case.
In a fascinating twist, Coinbase has argued that the cryptocurrencies traded on its platform resemble baseball cards more than securities. It proposes that baseball cards are commodities that individuals purchase and sell, hoping their value will appreciate.
Frequently Asked Questions (FAQs) about Coinbase SEC Lawsuit
What is Coinbase’s core argument against the SEC lawsuit?
Coinbase’s main argument is that it does not deal in ‘investment contracts’, as defined by decades of Supreme Court and other binding precedents. Therefore, the Securities and Exchange Commission (SEC) doesn’t have authority over its operations.
What is the SEC accusing Coinbase of?
The SEC has accused Coinbase of illegally operating as an unregistered national securities exchange, broker, and clearing agency, making billions of dollars by unlawfully facilitating the buying and selling of crypto asset securities.
How does Coinbase relate its case to the Ripple Labs’ XRP situation?
In its motion to dismiss, Coinbase referred to a separate case where a judge ruled that Ripple Labs’ XRP was not a security when sold on exchanges. Coinbase is using this precedent to argue that it also does not deal in securities.
How does Coinbase describe the cryptocurrencies sold on its platform?
Coinbase argues that the cryptocurrencies that are sold on its platform are more similar to commodities like baseball cards than securities. These are items that people buy and sell, hoping their value will increase.
Are the Ripple and Terraform cases precedents in the Coinbase case?
No, neither the Ripple nor the Terraform suit sets a controlling precedent in the Coinbase case. A different judge even disagreed with the Ripple ruling, allowing the SEC to proceed with a case against Terraform Labs and its CEO, involving exchange-based sales.