SEC and Coinbase Examine Whether Securities Law Applies to Listings with a U.S. Judge

January 22, 2024

By Anjali Kochhar

The legal battle between the U.S. Securities and Exchange Commission (SEC) and Coinbase is intricate, hinting on whether transactions involving approximately a dozen tokens on the exchange qualify as securities. During a recent court proceeding, both the SEC and Coinbase agreed that the tokens, in themselves, are not securities. The SEC argued that each transfer represented an investor buying a stake in a token ecosystem with profit-sharing intentions, claiming Coinbase violated securities laws. However, Coinbase countered, asserting these were secondary-market deals without a contract, making them not securities.

Coinbase seeks to have the SEC’s allegations of law violations dismissed, and Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York is yet to make a ruling. The uncertainty surrounding her decision adds to recent court decisions on similar matters. Regardless of the outcome, it may reinforce industry sentiments that the SEC is overreaching in its pursuit of crypto platforms as unregistered exchanges trading in unregistered securities. The judge’s opinion could potentially be influenced by similar SEC actions against other exchanges like Binance and Kraken.

According to CoinDesk, it’s noted that Patrick Costello, an SEC attorney, argued that regardless of how digital assets are acquired, the computer code remains the same, emphasizing the token as the key to entering the ecosystem. William Savitt, defending Coinbase, clarified that an “investment contract” is a security defined by the “Howey test” and requires a contractual commitment between the buyer and the token issuer.

Judge Failla refrained from expressing a clear opinion, acknowledging the complexity of the case, and Costello addressed concerns about broadening the definition of securities. Notably, she expressed hesitancy toward the “Major Questions Doctrine,” a potential restraint on the SEC’s actions until Congress legislates on cryptocurrencies.

Crypto experts, including Justin Slaughter of Paradigm and Dave Rodman of Rodman Law Group, noted the judge’s apparent skepticism toward some of the SEC’s viewpoints. Slaughter emphasized the hearing’s overall skepticism of the SEC’s claims. The case underscores the complexity and evolving nature of regulations surrounding cryptocurrencies.

About the author

Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.