Coinbase vs. SEC: Regulator Pushes Back Against Exchange

The battle between Coinbase and the U.S. Securities and Exchange Commission (SEC) continues to intensify as regulators push back against the crypto exchange’s attempts to have a securities law violation lawsuit dismissed.

The SEC originally filed the lawsuit against Coinbase in June, alleging that the exchange had failed to register as a securities exchange.

Coinbase then countered the filing by seeking a pre-trial ruling asserting that crypto transactions differ fundamentally from investment contracts, aiming to undermine the SEC’s case.

In response, the SEC has now urged the court to reject Coinbase’s dismissal request, citing “fatal flaws” in the exchange’s arguments, CoinDesk reported on Tuesday.

The case hinges on the interpretation of the Howey test, which determines whether an asset qualifies as an investment contract – otherwise known as a security – that is subject to SEC regulation.

Crypto does not fit the definition of an investment contract, Coinbase say

Coinbase contends that crypto trades do not meet this definition because they do not involve formal contracts, while the SEC argues that formal contracts are not a prerequisite for an investment contract.

The SEC’s stance is that Coinbase facilitated transactions in “investment contracts,” making its customers eligible for protections under federal securities laws.

Writing on social media platform X on Tuesday, Coinbase’s Chief Legal Officer, Paul Grewal, maintained that the assets listed on its platform are not securities and are beyond the SEC’s jurisdiction, something the exchange has said since June this year.

The SEC also emphasized that allowing Coinbase to go public does not imply automatic endorsement that the trading on its platform complies with securities laws.

Coinbase has previously argued that the SEC, by allowing the exchange to become a publicly traded company, implicitly said the company operated in compliance with securities regulations.