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SEC Accuses Coinbase of ‘Not Liking’ Current Securities Regulation

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The U.S. Security and Exchange Commission has filed a preliminary statement in court against the exchange company Coinbase.

The statement highlights that Coinbase has arranged its business affairs in ways that may make it costly to comply with existing law, indicating its distaste for the current framework for securities regulation.

The SEC also notes that Coinbase has attempted to rewrite settled legal precedent to suit its policy goals and business needs without providing a compelling reason for prematurely certifying an appeal in this case.

Coinbase has requested the exceptional relief of interlocutory review of the March 27, 2024 Order (D.E. 105, the “Order”), alleging that this Court incorrectly applied SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

Although Coinbase claims to seek to certify whether Howey requires “obligation[s] running to the purchaser beyond the point of sale,” their Motion continuously fluctuates between that and other questions for certification, such as “how Howey applies to [digital asset] transactions” generally.

However, regardless of the version of the question for certification Coinbase proposes, the Motion should be denied. Parties cannot manufacture a certifiable issue by jettisoning and rescuing the questions in the original order.

Order On Investment Contract VS. Coinbase

The Order dealt with the “obligations running” argument and with Coinbase’s affirmative defenses, including statements regarding sales of crypto assets in secondary market transactions and the requirement for investment contracts to provide a share in business income, profits, or assets.

Additionally, the SEC’s recent order addressed the staking-related Howey claim, which was highly factual. The Order also applied established law to allegations about transactions in certain crypto assets, and it found no doubt as to how to apply to crypto assets “the framework that courts have used to identify securities for nearly eighty years.”

Notably, the Order noted the lack of legal authority for Coinbase’s various arguments at every turn. The Motion scarcely contends otherwise and fails to offer a case with which the Order conflicts.

Therefore, based on the available evidence, it is inevitable that the Order was correct and does not meet the necessary standards for interlocutory review.