Coinbase, a cryptocurrency exchange, has filed a response against the allegations from the Securities and Exchange Commission (SEC), saying the claims “lack all merit.” It also argued that even if the SEC’s assertion of regulatory power over its cryptocurrency services was correct, the watchdog’s action still violates its “due process rights and constitutes an extraordinary abuse of process.”
Coinbase Slams SEC over ‘Securities’ Claims
In early June, the SEC filed a lawsuit against Coinbase, claiming that the largest crypto exchange in the United States, is operating an unauthorized trading platform and offers unregistered securities. The financial watchdog accused Coinbase of running a digital asset staking-as-a-service programme without permission.
However, in its 177-page-long response submitted to the district court of New York yesterday (Wednesday), Coinbase said it is not and has never been a securities exchange, broker or clearing agency. It further argued that cryptocurrencies traded on its platform fall outside the SEC’s authority because they are not ‘investment contracts’ or assets pooled from investors to engage in businesses. Without this obligation, Coinbase’s listed crypto are not ‘securities’ but ‘just an asset sale,’ the exchange contended.
Today @coinbase filed our answer and notice of intent to file a motion to dismiss the @SECGov case against us. You can read our response for yourself – our arguments speak for themselves. 1/2 https://t.co/Ld2ZEejhyM
— paulgrewal.eth (@iampaulgrewal) June 29, 2023
To support its argument that its assets listed are not securities, Coinbase referenced a speech from June 2018 by Bill Hinman, the former Director of the SEC’s Division of Corporation Finance. In the speech, Hinman said that a token all by itself is not a security and the sales of Ether, the second largest cryptocurrency after Bitcoin, were not securities transactions.
More Defence from Coinbase
Furthermore, Coinbase, while expanding on its argument that the SEC has no legal power to supervise its business, pointed to the Chairman of the SEC, Gary Gensler who submitted his testimony before the US Congress in May 2021. During the testimony, Gensler said that crypto exchanges lack a regulatory framework and market regulator.
Meanwhile, the SEC in its allegations named 12 cryptocurrencies offered by Coinbase, including Solana (SOL), Cardano (ADA), Polygon (MATIC), Sandbox (SAND) and Axie Infinity (AXS), as tokens. However, in the filing, Coinbase noted that six of the named tokens were already being traded on its platform from April 2021 when the SEC accepted its registration statement.
The exchange said it had successfully registered with the securities regulator after “years of discussions” and “a months-long process of extensive review.”
“Coinbase had opened its business to the SEC, explaining its listing of digital assets, provision of trading and staking services, and self-custody wallet software — core aspects of Coinbase’s operations, then as now,” the exchange explained.
Despite these developments, Coinbase said that it had repeatedly continued to seek engagement with the SEC and even petitioned the regulator in July last year to explain what assets it considers as securities. Earlier this month, after the exchange asked a federal court to compel the regulator to respond, the SEC said it had not decided on what action to take with regard to the petition, Finance Magnates reported.
No, seriously— what’s it gonna take? https://t.co/rpiaSsSYYo
— paulgrewal.eth (@iampaulgrewal) June 28, 2023
Other pages in Coinbase’s court filing provided the basis for its opposing argument to the SEC’s allegations. The exchange’s quick response was made in the wake of the securities watchdog’s heightened regulatory crackdown on crypto exchanges in the United States.
SEC vs Coinbase Case Set for July 13
Meanwhile, the date for hearing the case between the SEC and Coinbase has been set for July 13. The date is much earlier than expected because the exchange filed its first response 40 days before the given deadline.
In approving the date, the court changed the pre-trial conference to a pre-motion conference, with the hearing expected to be held at 14:00 UTC. Before the changes, the case was scheduled to be heard on August 24.
A pre-trial conference and a pre-motion conference are both meetings between the judge and legal counsel in a civil or criminal case. However, while the first is arranged to discuss the status of the case and make an attempt to resolve any outstanding issues before the commencement of the trial, the second is targeted at discussing a specific motion that has been filed in the case.
One of the issues the SEC will be responding to is about tokens it claimed in its filing were securities listed on Coinbase. Additionally, the financial watchdog will address the argument that enforcing the tokens as securities is outside its jurisdiction.
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