The U.S. Securities and Exchange Commission (SEC) filed an opposition on Oct. 3 against Coinbase's motion to dismiss the SEC's lawsuit. Coinbase, the largest cryptocurrency exchange in the U.S., submitted the motion to dismiss in August, arguing that the SEC was abusing its authority and ignoring the legal definition of an "investment contract."
In the preliminary statement of its opposition, the SEC said the case hinges on whether Coinbase facilitated transactions involving "investment contracts," defined by the Supreme Court in SEC v. Howey as "a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party," according to a copy of the opposition filing.
The SEC asserted in the opposition that Coinbase's platform effectively operates in the same way that exchanges for other securities operate, and therefore, Coinbase needed to register with the SEC as a national securities exchange.
Coinbase Chief Legal Officer Paul Grewal wrote in a post earlier this year that Coinbase had repeatedly tried to engage with the SEC, but the SEC had been uncommunicative. Last summer, before the SEC filed its lawsuit, Grewal said the SEC asked Coinbase if it would be interested in registering with the SEC and laying out what a potential path for registration would look like for other crypto exchanges.
Coinbase said it was absolutely interested in registering with the SEC and developed and proposed two different models for registration. "We spent millions of dollars on legal support to build these proposals and repeatedly asked for the SEC’s feedback. We got none," Grewal said. He said the SEC also declined multiple invitations to provide feedback or raise questions about Coinbase's listing process.
Grewal said in a post on X that the SEC approved Coinbase's application to go public in 2021, and Coinbase has also successfully become licensed and registered in many other jurisdictions, including Singapore, Ireland, Australia and Germany.
In response to the SEC's recent opposition filing, Grewal said in a post on X that the SEC is continuing to make assertions about the law without any legal citations. He said the way the SEC is attempting to apply securities laws to digital assets would mean that "everything from Pokemon cards to Swiftie bracelets are also securities." Grewal said Coinbase would submit its response to the SEC's opposition on Oct. 24.
Industry groups including the Blockchain Association, the Chamber of Progress, the Consumer Technology Association and the Crypto Council for Innovation jointly filed an amicus brief in August in support of Coinbase's motion to dismiss the lawsuit, according to a press release. The organizations said in the brief that the SEC was overstepping its authority, contradicting legal precedent and undermining Congress's role in regulating emerging technologies.
