Cryptocurrency exchange Coinbase has just filed a motion urging a New York federal court to dismiss the U.S. Securities and Exchange Commission (SEC) lawsuit against the company, arguing the American regulatory agency’s claims are inconsistent and goes against previous understandings between the two entities.
On June 29, Paul Grewal, the chief legal officer at Coinbase took to Twitter to unveil the new filings against the SEC. He argued that when the SEC approved Coinbase’s registration statement back in 2021, there was no suggestion that the exchange had to register its operations.
Today @coinbase filed our answer and notice of intent to file a motion to dismiss the @SECGov case against us. You can read our response for yourself – our arguments speak for themselves. 1/2 https://t.co/Ld2ZEejhyM
— paulgrewal.eth (@iampaulgrewal) June 29, 2023
Coinbase Puts Up a Fight
According to the new filings, none of the assets the SEC now identifies as securities are indeed securities, and the transactions are not securities transactions. Furthermore, the company claimed the cryptocurrencies on the exchange’s secondary market platform are not part of any arrangements where a promoter is selling an asset tied to a contract. This is in alignment with the Supreme Court’s Howey case.
For the unversed, the Howey Test refers to the U.S. Supreme Court case for determining whether a transaction qualifies as an “investment contract.” If a transaction is found to be an investment contract, it’s considered a security. It’s then subject to registration requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934.
As per a report, the crypto exchange’s legal team filed a response to the SEC’s allegations against Coinbase, early on Thursday. The crypto outfit slammed the regulatory agency’s overreach, stating that the SEC has no jurisdiction over the cryptocurrencies on its exchange platform. In addition, Coinbase has also cited fundamental “regulatory gaps” that limit the SEC’s authority in the digital assets space.
Lawsuit Against Coinbase Should Be Dismissed
In its motion, Coinbase has also argued the SEC has violated their due process rights noting the agency’s regulatory authority has shifted between the previous Chair and current Chair Gary Gensler’s term. In his tweet, Grewal wrote,
“We welcome dialogue any time with any regulator, including the SEC, and believe new legislation and rulemaking is the right path forward. But the claims, in this case, go far beyond existing law, and should be dismissed.”
The development comes after the SEC served a legal notice to Coinbase for an alleged violation of the securities law. The lawsuit by the SEC claims that the exchange never registered itself as a broker, and has been operating illegally since 2019. Furthermore, the regulator claims that a bundle of cryptocurrencies including Solana (SOL), Cardano (ADA) and Polygon (MATIC) among others, offered by Coinbase are securities.
