The ongoing legal battle between Coinbase and the Securities and Exchange Commission (SEC) has reached a critical phase, as the New York District Judge Katherine Polk Failla probed Coinbase in court about whether tokens listed on its exchange were securities. This is in response to the SEC’s lawsuit filed in June, alleging that Coinbase operated as an unregistered exchange, broker, and clearing agency, which Coinbase has vehemently refuted and sought to have the case dismissed.
During the court hearing, Coinbase’s lawyer, William Savitt, delved into the definition of securities, highlighting a distinction between “investing in Beanie Baby Inc. and buying Beanie Babies.” This argument centered around the SEC’s claim that certain tokens listed on Coinbase, including SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO, were securities.
Savitt contested the SEC’s allegations, asserting that the SEC failed to present any allegations in its lawsuit that would satisfy the investment contract definition. While acknowledging that token transactions could potentially be investment contracts, he maintained that the SEC did not provide evidence to support this claim.
Furthermore, the hearing saw a clash between the SEC and Coinbase attorneys regarding the classification of Bitcoin as a security. The SEC argued that Bitcoin is not a security due to the absence of a common enterprise behind it, while Coinbase’s representative countered this, highlighting the presence of an ecosystem behind Bitcoin.
The judge also probed Coinbase’s lawyer about past court decisions, including the recent Terraform Labs case and the infamous Ripple case, which have implications for the classification of cryptocurrencies as securities.
Another noteworthy point of discussion was Coinbase invoking the major questions doctrine, which asserts that an agency must be supported by clear congressional authorization when deciding on an issue of major national significance. However, Judge Failla expressed hesitation in implicating the doctrine, citing its infrequent application in court decisions.
Following the hearing, Judge Failla indicated that while some questions had been addressed, additional considerations remained, indicating that a decision would not be reached immediately. If the judge denies Coinbase’s motion to dismiss, the case would proceed to discovery, and a trial could potentially take place in 2025.
As this legal battle plays out, it has far-reaching implications for the crypto industry as a whole, particularly in determining the regulatory status of various digital assets. The outcome of this case could significantly impact how cryptocurrency exchanges operate and the regulatory framework governing the industry.
It’s worth noting that this article is intended for informational purposes only and does not constitute legal, tax, investment, financial, or other advice. The ongoing proceedings underscore the complex and evolving regulatory landscape surrounding cryptocurrencies and highlight the need for clear guidelines to govern their classification and trading.