The US Securities and Exchange Commissions (SEC) responded to Coinbase’s motion to dismiss the regulator’s lawsuit and grant judgement in favour of all claims. In the 177-page document, Coinbase argued that SEC actions violated the exchange’s due process rights and constitutes a case of regulatory overreach.
SEC: Coinbase understood securities laws
In the new filing, the regulator claimed that Coinbase repeatedly informed shareholders that assets on its platform could be deemed securities.
Filed on July 7, the SEC’s legal response was that it would oppose any motion for judgement that Coinbase might file. Coinbase petitioned the court to judge in favour of the exchange based on the merits of its case, without going through a full trial.
One argument in Coinbase’s case is that the SEC approved the exchange’s registration when it listed on the Nasdaq in 2021. At the time, six of the twelve assets which the SEC alleges are securities traded on the platform. Despite this, the regulator did not raise concerns about the legality of the business.
The SEC’s about-face is not a product of material changes to Coinbase’s business since 2021; none are alleged. Nor is it due to new information. The only change is in the SEC’s position regarding its powers.
Conversely, the SEC claims that Coinbase’s actions contradict its own claims. Since it became a public company, the regulator said the exchange repeatedly told shareholders that cryptocurrencies could be deemed securities in violation of federal laws, “including in the very registration statement it now points to as proof that the SEC supposedly blessed its conduct.”
The SEC filing stated:
These actions clearly show that Coinbase understood that the securities laws could apply to its conduct and knew which rules to consider in evaluating the legality of its conduct, but nevertheless made the calculated decision to take on this risk in the name of growing its business.”
A public hearing on the motion of judgement will take place on July 13 in the District Court for the Southern District of New York.
According to one lawyer, the SEC’s arguments are not strong due to the cited case that buttresses its argument. Murphy believes that the SEC’s arguments against Coinbase are weak because it cited the case of SEC v. LBRY, among others, in its letter.
In the case, which the SEC won in November last year, token issuer LBRY was charged with offering crypto unregistered securities. According to Murphy, the judge in the cited case did not rule that tokens traded on secondary platforms are securities. As such, the case is not supportive of the SEC’s claim, Murphy believes.
The SEC could come up with “better case law” in the full briefing, but “this is not signalling strength.”
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