The Crypto Council for Innovation, an organization dedicated to advancing innovation in the cryptocurrency industry, said the U.S. Securities and Exchange Commission's recent enforcement actions in the crypto industry are an overreach of its regulatory authority stemming from the assumption that most digital assets are securities.
"The SEC has taken the novel & flawed interpretation that nearly all digital assets sold on the secondary market are 'investment contracts' under federal securities laws, even though those transactions involve no ongoing contractual obligations," CCI said in an Aug. 11 post on X, formerly Twitter. "We think the court should reject the SEC’s attempt to extend its regulatory reach far beyond the bounds that Congress has authorized. Congress has not provided the SEC with regulatory authority over transactions in digital assets. The SEC is trying to expand its authority into many areas of the US economy."
CCI filed the amicus brief jointly alongside the Blockchain Association, Chamber of Progress and Consumer Technology Association in support of Coinbase's motion for judgement, according to a post on CCI's website.
"The SEC’s attempt to exert jurisdiction over digital assets clashes with established legal precedent and Congressional authority to regulate emerging industries," the website said. "This assertion marks a significant departure from the traditional concept of 'investment contract,' potentially encroaching on industries like fashion and collectibles where consumers might buy coveted items with the anticipation of future value increases based on the manufacturer’s efforts."
Ji Kim, the head of global policy at CCI, said in a post on X that if the SEC's "flawed logic" is expanded outside of digital assets, actions like purchasing a basketball card with the hope of reselling it at a higher price would be considered securities transactions subject to SEC regulation.
"Accepting that sweeping view would work an unprecedented expansion of the SEC’s authority and extend its reach into EVERY corner of the American economy," Kim said on X. "Unfortunately, this is the argument the SEC uses to bring its enforcement actions against Coinbase and other secondary market platforms."
Paul Grewal, Coinbase's chief legal counsel, thanked the organizations that filed the amicus brief in a post on X.
"I can't say enough how gratifying it is to get support from so many amici today," Grewal said on X. "Thank you. I appreciate the effort behind these briefs, and can't wait to read every word. I know they will prove useful to the Court in understanding the legal errors of the SEC's ways."
Last month, Judge Analisa Torres, of the Southern District of New York, ruled in a separate case that the digital token XRP does not constitute an investment contract when sold to members of the general public. The SEC had accused the company Ripple of violating securities laws by offering XRP. Stuart Alderoty, Ripple's chief legal officer, said Torres's ruling could apply to other crypto exchanges facing enforcement actions from the SEC, including Coinbase, as well as Binance, the largest crypto exchange in the world, Federal Newswire previously reported.
"The core allegation...both in the Coinbase lawsuit and in the Binance lawsuit - that an exchange trading a digital token would therefore need to register as a national security exchange - that was repudiated by this judge in our case," Alderoty said in a July 25 episode of TechCrunch's Chain Reaction podcast. "We have a clear statement that the trading of a digital token - in this case XRP, but I think you can analogize to other tokens...that does not make a contract for an investment, and therefore there's no security, and therefore there's no role for the SEC to play. I think that ruling will play well in the Coinbase case, and it should play equally well on that claim in the Binance case."
