SEC’s Stance on Coinbase Case: Regulator Pushes for Denial, Prolonging Ongoing Legal Struggle

The SEC of the United States has shown no indications of relenting in its continuing action against Coinbase Global. On October 3rd, the SEC asked a federal court to reject Coinbase’s motion to dismiss the action. Furthermore, the SEC said that the cryptocurrency exchange had been functioning illegally as a national securities exchange, broker, and clearing agency without being registered with the SEC.

The SEC highlighted a recent Terraform Labs judgment in its opposition to Coinbase’s move to dismiss the complaint. The court’s original reasoning in the Ripple Labs case was virtually overturned by this ruling. Significantly, the Ripple case has been largely hailed as a watershed moment in the crypto sector. The SEC’s reliance on the Terraform Labs decision raises questions about Ripple’s stability judgment.

paulgrewal.eth on Twitter: "The @SECgov just filed its opposition to our motion to dismiss their case against @Coinbase. It's more of the same old same old. But don't just take my word for it - take a look for yourself. 1/7 https://t.co/QMdkRoiq0V / Twitter"

The @SECgov just filed its opposition to our motion to dismiss their case against @Coinbase. It's more of the same old same old. But don't just take my word for it - take a look for yourself. 1/7 https://t.co/QMdkRoiq0V

Legal Precedents and SEC’s Jurisdiction

Coinbase had claimed that the goods and services it dealt with were not securities, and hence that the SEC lacked authority to prosecute them. The SEC, on the other hand, said that, with the notable exception of the Wallet application, Coinbase does indeed function as an exchange, broker, and clearing agency. As a result, the legal argument comes down to whether Coinbase participated in transactions containing investment contracts and, so, securities. According to the SEC, it did.

Furthermore, the SEC’s firm position has larger consequences for the bitcoin ecosystem. Under the leadership of Chair Gary Gensler, the SEC contends that most cryptocurrencies are securities and so subject to investor protection requirements. Coinbase, on the other hand, claims that many digital assets do not qualify as securities and hence fall outside of the SEC’s authority.

This protracted court dispute is being closely followed not just by the individuals immediately involved, but also by the crypto industry as a whole. The conclusion will have a significant impact on the legal position of cryptocurrencies and may influence regulatory procedures for years to come.

The SEC’s Legal Claim Is Based on Staking and Wallets

Coinbase pointed to the first and fourth principles of the Howie Test in its move to dismiss the SEC’s case.

It claimed, in particular, that its crypto staking service does not involve “an investment of money” since Coinbase users do not lose their digital currency, which Coinbase claims it just stakes on behalf of them.

The SEC noted in response to that assertion, “Courts haven’t ever enforced a condition that investors give up lifelong authority over the capital invested into the business.”

It stated that “Coinbase denies that it needs staking investors to move the staking-eligible assets to Coinbase’s omnibus wallets, where they are commingled and considered as fungible.”

Coinbase is opposed to the SEC’s view that its staking platform requires the “managerial” activities of others to earn revenue for users, in addition to the “investment of money” part of the Howey Test.

Coinbase, for its part, claims that it just acts as a middleman, permitting staking but not overseeing the entire procedure.

Meanwhile, the SEC claims that the manner the exchange conducts its staking pools is the type of “management” that the Howey Test considers essential to determining the scope of an investment contract.

Closing Thoughts

As the SEC keeps arguing its point of view, it becomes evident that the securities regulator is reluctant to back down from its enforcement measures. While the SEC maintains that it is working within its authority, Coinbase charges the agency with exceeding its authority. As a result, the court’s final decision will be a watershed moment in establishing the SEC’s power over crypto assets.

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SEC Urges Judge to Deny Coinbase Case: Legal Battle Continues was originally published in Invest Gaming Journal on Medium, where people are continuing the conversation by highlighting and responding to this story.