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Coinbase, a prominent cryptocurrency exchange in the United States, has argued in its initial legal response to the lawsuit filed by the U.S. Securities and Exchange Commission (SEC) that the digital assets listed on its platform are not under the jurisdiction of the SEC.
In early June, Coinbase was sued by the SEC, which accused the company of offering a dozen cryptocurrencies through its wallet or trading platforms that were not registered securities. In response, Coinbase filed its answer on Thursday, asserting that these cryptocurrencies do not qualify as investment contracts and, consequently, should not be classified as securities.
Coinbase has previously presented this argument in public statements, including tweets and blog posts. However, in the filing submitted on Thursday, Coinbase provides a more comprehensive explanation of its position. The company asserts that the cryptocurrencies traded on its secondary market platform do not involve any arrangements where a promoter sells an asset connected to a contract. In essence, Coinbase refers to the Supreme Court's Howey case as an example, outlining that the cryptocurrencies in question do not meet the criteria outlined in that case.
The filing explicitly states that the token issuers bear no obligations or liabilities towards the investors.
"Because no such obligations are carried in the transactions over Coinbase’s secondary market exchange, and because the value that Coinbase purchasers receive through these transactions inheres in the things bought and traded rather than in the businesses that generated them, the transactions are not securities transactions," the filing said.
Some of the documentation repeatedly emphasizes Coinbase's existing public statements, asserting that the current SEC Chair, Gary Gensler, altered his stance regarding the regulatory jurisdiction over cryptocurrencies from the time he assumed office in April 2021 until mid-2022. The filing highlights the company's proactive efforts in seeking regulation and acknowledges the attention Congress has devoted to the subject of cryptocurrency regulation.
"Even were the SEC correct that the assets and services it identifies are within the scope of its existing regulatory authority, this action must be dismissed on the independent grounds that it violates Coinbase’s due process rights and constitutes an extraordinary abuse of process," the filing said. "For years, Coinbase has voluntarily submitted to regulation by multiple overlapping regulatory bodies, has adhered to the public and limited formal guidance from the SEC, senior SEC Staff, and the courts about the application of securities law to its industry, and has begged the SEC for guidance about how it thinks the federal securities laws map onto the digital asset industry as the SEC’s actions reflected an escalating but undisclosed change in its own view of its authority."
"The SEC has chosen" to pursue enforcement actions over rulemaking, the filing claimed.
The remaining portion of the submission comprises a detailed and comprehensive response to the lawsuit filed by the SEC.
In a supplementary submission presented to the presiding judge of the case, Coinbase asserted that its right to due process was infringed upon by the SEC during the initiation of the lawsuit. Furthermore, Coinbase raised concerns that the SEC's lawsuit might contravene the principles established under the "major questions" doctrine. The company requested the court's permission to file for judgment and proposed a 7-week timetable encompassing its motion, the SEC's counterarguments, and Coinbase's response to the opposition.
