Coinbase Challenges SEC’s Classification of Crypto as Securities in Ongoing Legal Battle
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Coinbase, the leading US cryptocurrency exchange, has challenged a Securities and Exchange Commission (SEC) ruling that classified secondary sales of crypto assets as securities transactions. The cryptocurrency firm argued that the proceedings needed to be properly examined.
Coinbase Attorney Challenges SEC’s Interpretation of Crypto Sales as Security Contracts
Coinbase’s attorney, Michael Savitt, wrote to U.S. District Judge Katherine Failla on March 5, 2019. Saviit requested the dismissal of the SEC’s lawsuit with Wahi. He urged the Judge not to enforce this interpretation, stating it should “have no value.”
The dispute stemmed from a lawsuit filed by the SEC in July 2022. The lawsuit was against former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi, and their friend, Sameer Ramani, for alleged insider trading involving nine cryptocurrencies.
The Wahi defendants argued that the tokens were not “investment contracts” and thus outside the SEC’s jurisdiction. Coinbase supported this argument.
However, before ruling on this motion, the SEC reached an amicable settlement agreement with the Wahi Brothers in June 2023. The settlement involved agreeing to a zero-dollar payment, with no admission of wrongdoing, and denying any accusations related to investigations or accusatory documents.
Subsequently, the SEC obtained a default judgment against Ramani without opposition. This essentially affirmed its claim that cryptocurrency assets qualify as “investment contracts,” a stance previously rejected in the context of the Coinbase lawsuit.
Savitt argued that the court judgment against Ramani, who did not appear for trial, should be disregarded. He claimed that key issues were not discussed or examined during the court proceedings.
Coinbase respectfully argues that the Wahi order was obtained against an empty chair, and its reasoning reflects this. Coinbase believes any default judgment against Mr. Ramani should carry no weight.
Coinbase’s Legal Battle with the SEC Could Define Crypto Regulation
The SEC and Coinbase dispute centers around the SEC’s assertion of authority over crypto exchanges and their listing of tokens as securities.
The conflict escalated when the SEC issued a notice on March 4, attempting to undermine Coinbase’s case by suggesting that insider trading charges against Ishan Wahi, a former Coinbase Product Manager, could become relevant.
This move was seen as an attempt to bolster the SEC’s argument that tokens were considered securities at the time of the alleged insider trading.
Earlier dialogue between Coinbase and the SEC in January revolved around whether Coinbase’s crypto assets met the criteria of the Howey Test, which determines if an asset is a security. Bloomberg Litigation Analyst Elliott Stein predicted that this dispute could lead to complete dismissal of the lawsuit against Coinbase.
In June 2023, the SEC filed a lawsuit against Coinbase, alleging violations of federal securities laws for listing tokens it deemed to be securities. Coinbase seeks to dismiss the case, arguing that it raises questions about the SEC’s authority over crypto exchanges.
⚠️JUST IN⚠️
SEC sues Coinbase for breaking US securities rules pic.twitter.com/0UZqX4u4Ac— CDEX (@officialCDEX) June 7, 2023
The cryptocurrency industry is closely monitoring the outcome of this legal battle, as it could have far-reaching implications for regulating crypto assets.
If Coinbase successfully forces the SEC to present its case officially, it could provide greater clarity regarding applying securities laws to cryptocurrency investments and businesses.
However, if the SEC prevails, it could mean even stricter regulations against crypto exchanges and enterprises.
