On June 29, Coinbase, the leading cryptocurrency exchange, officially responded to the charge made against it by the U.S. Securities and Exchanges Commission (SEC).
Cryptocurrencies on Coinbase’s platform are out of the SEC’s jurisdiction, the company claims in its filing. Additionally, the company issued a notice of motion to seek a Court’s dismissal of the charges.
Challenge to the SEC’s Legitimacy
The 177-page motion submitted to the U.S. District Court for the Southern District of New York outlined two key arguments.
Firstly, it asserted that the SEC does not possess legitimate jurisdiction over cryptocurrencies. Secondly, it contended that assets categorized as securities by the SEC are simply assets.
Earlier this month, the U.S. regulatory agency accused Coinbase of failing to register as a securities exchange. The SEC stated in its lawsuit that Coinbase had made billions of dollars since 2019 as a third-party party in multiple crypto transactions.
The agency also stressed that thirteen trading assets of Coinbase were unregistered securities. Some major coins in the list are SOL, ADA, MATIC, SAND, FLOW, ICP, NEAR, and DASH.
In response to the SEC’s complaint, Coinbase stated, “None of the assets the SEC has now identified are in fact securities, and for that and other reasons, secondary transactions in those assets are also not securities.”
Not a Fair Fight
Coinbase’s decision to file a motion to dismiss highlights the firm’s strong resolve to contest the SEC’s lawsuit. By seeking a dismissal, Coinbase’s legal team asserts that even if the SEC’s allegations are assumed to be true, the plaintiff lacks a legitimate legal basis for the claims made.
The company’s legal team stated in the filing that the legal action must be dismissed on independent grounds, stating that it violates Coinbase’s due process rights and constitutes an “extraordinary abuse of process.” They further argued that even if the SEC were correct about the assets and services, there is still no valid legal claim.
In the legal document, the company pointed out that the SEC’s decisions seemed inconsistent. They highlighted that the SEC did not raise objections to six specific tokens during their previous interactions with Coinbase in 2021.
The lawyers representing the exchange argued that the SEC had approved Coinbase’s registration statement, allowing the company to sell its shares to investors when it went public.
This approval came after a thorough review process that took several months and involved extensive discussions with Coinbase. As a result, Coinbase was able to offer trading for over 240 tokens on its spot exchange, including six of the 12 tokens that are currently being disputed.
Many crypto companies argue that the SEC’s regulations are vague and over-authoritative. However, many companies have stepped up compliance, halted products, and expanded overseas in response to the SEC sweep.
The legal battles between the two entities significantly affected Coinbase. Shares of parent company Coinbase Global Inc (COIN.O) were down to $7.10. However, the company said it would continue to operate and has demonstrated its commitment to compliance.
According to early estimates from data firm Nansen, $1.38 billion has flowed out of the Coinbase exchange as investors rushed to withdraw their funds.
When is Clarity Coming?
Legal battles between regulatory agencies like the SEC and major crypto companies can significantly affect the crypto legal landscape in the United States.
However, if the final verdicts in these lawsuits fail to provide clear guidance or establish precedent, it could potentially hinder the clarity and regulatory certainty that the industry seeks.
Legal proceedings should address the underlying legal questions and provide a framework that helps shape the future of crypto regulation rather than merely prolonging uncertainties without offering definitive resolutions.
Of course, there are clear political motivations in play, which are not likely to be resolved anytime soon.