On October 4, the US Securities and Exchange Commission (SEC) filed a lawsuit challenging Coinbase’s attempts to dismiss an SEC-filed lawsuit alleging that the crypto exchange violated multiple securities laws.
Coinbase first tried to have the regulator’s charges dropped in August. At the time, it claimed that none of the services offered on its platform were covered by securities law.
The SEC has now countered this by claiming that Coinbase’s role in brokering transactions in investment contracts meets the Howey test, which serves as the litmus test for investment contracts under US securities law.
The regulator addressed the issue as follows:
“To ignore [the application of the Howey test]Coinbase instead asks the Court to conclude that crypto asset transactions on its platform can never constitute ‘investment contracts.’
To this end, Coinbase wants to argue that investment contracts necessarily involve common law contractual agreements – something it does not rely on.
The SEC said this is not a requirement. It said courts have used the Howey test to apply securities laws to investments made outside formal contracts, but acknowledged that courts sometimes consider contractual obligations.
Coinbase shouldn’t be surprised by the charges
The SEC further complained that Coinbase is trying to blame it for the current situation due to alleged flaws in the regulatory process. The regulator countered that the lawsuit “cannot really come as a surprise,” writing:
“[Coinbase] has known all along that a crypto asset bought and sold on its trading platform is a security if it meets the Howey test – as it already acknowledged in 2016 on its website and in its filings with the SEC, as well as in …efforts to analyze assets it was considering bringing to market…using the Howey test.”
The SEC challenged Coinbase’s attempts to invoke the big questions doctrine. Coinbase wants to argue through this doctrine that Congress has not explicitly delegated authority to the SEC over the matters at hand. The SEC said in its filing that it has not adopted any new authorities and is working within existing federal securities laws.
The agency also suggested that Coinbase’s attempts to cite a recent ruling in favor of Ripple’s token sale are not applicable in the current circumstances. It also challenged Coinbase’s attempts to differentiate itself from previous cases against LBRY, Kik and Telegram, in which the SEC each won a settlement against the targeted company.
The SEC originally filed a case against Coinbase on June 6. Coinbase is one of the few crypto companies that chose to fight the SEC rather than settle.
The report that SEC reversed Coinbase’s request to dismiss the case first appeared on CryptoSlate.