Major US crypto exchange Coinbase is filing a motion to dismiss the US Securities and Exchange Commission (SEC) lawsuit against it.
The SEC sued Coinbase earlier this month, alleging that the platform sold unregistered securities after designating a number of crypto-assets, such as Cardano (ADA), Solana (SOL), and Polygon (MATIC), as securities.
However, Coinbase recently filed a motion with the Southern District of New York to dismiss the lawsuit, citing no regulatory jurisdiction. In the filing, Coinbase argues that its transactions do not qualify as securities.
“Like all securities, an economic arrangement can only qualify as an investment contract if it is a going concern whose management owes enforceable obligations to investors. Without such obligations, the contract is just a sale of assets.
Because no such liabilities are borne in the transactions through Coinbase’s secondary market exchange, and because the value Coinbase buyers receive through these transactions is inherent in the things bought and traded rather than the companies that generated them, the transactions not securities transactions.
According to Coinbase, SEC Chairman Gary Gensler is overstepping his authority by saying crypto companies should register as securities exchanges and be penalized retroactively for non-compliance.
“Before the SEC’s recent regulatory breach, no court had ever interpreted ‘investment contract’ as applying to a standalone sale of assets. Nor any arrangement whereby the seller is not required to run a business for the benefit of the buyer.
But by the end of 2022, nothing had changed except the SEC’s position, Chairman Gensler proclaimed, “I feel like we have enough authority, really, in this space” to require crypto companies to register as national stock exchanges.
As evidenced by this lawsuit, the SEC also now claims the power to impose retroactive penalties on companies for failing to recognize powers that its own chairman rejected two years ago.
The SEC is also suing Binance, the largest crypto exchange platform in the world by volume, on similar grounds.
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