U.S. Senator Lummis and Crypto Advocates Call for Dismissal of SEC's Lawsuit Against Coinbase

U.S. Senator Lummis and Crypto Advocates Call for Dismissal of SEC's Lawsuit Against Coinbase

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U.S. Senator Cynthia Lummis (R-Wy.) along with several cryptocurrency lobbying groups and a consortium of professors, urged a federal court on Friday to dismiss a lawsuit filed by the Securities and Exchange Commission (SEC) against the cryptocurrency exchange Coinbase.

By submitting amicus briefs, various organizations and legislators contended that the SEC was attempting to overstep its jurisdiction by filing a lawsuit that accused crypto trading platforms such as Coinbase of functioning as unregistered securities exchanges, brokers, and clearinghouses, thereby trading unregistered securities in the shape of cryptocurrencies. The SEC initiated legal actions against Coinbase and fellow exchange Binance (including its U.S. entity, Binance.US) in June of the current year.

The amicus briefs, directed to Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York, mirror Coinbase's own arguments presented in its motion seeking the dismissal of the case.

Collectively, a comprehensive set of six briefs was submitted by a coalition of lobby organizations such as the Blockchain Association, Crypto Council for Innovation, Chamber of Digital Commerce, DeFi Education Fund, Chamber of Progress and the Consumer Technology Association. Additionally, notable venture firms including Andreessen Horowitz and Paradigm, alongside the contributions of six esteemed academics, added to this substantial body of briefs, excluding the submission from the Senator.

In its recent motion for judgment, Coinbase contended that the transactions highlighted by the SEC earlier this month did not align with the criteria of an investment contract, thus asserting that these actions did not constitute a breach of securities law.

The filing of the amicus briefs follows a day after the SEC reached a resolution on comparable allegations with Bittrex, another worldwide exchange that operates within the United States. The U.S. division of Bittrex is currently undergoing bankruptcy proceedings.

“This is no run-of-the-mill enforcement case. Through this case the SEC seeks primary influence over economic, political, and legal questions under active consideration by Congress and multiple agencies,” the brief filed on behalf of Lummis said. “Amicus submits this brief to highlight: (i) the important questions implicated here, which are properly before Congress right now; and (ii) the fundamental separation-of-powers principles that weigh strongly in favor of deferring to Congress rather than adopting the SEC’s novel and expansive view of its own authority.”

The majority of the written submissions referenced the recent Supreme Court ruling in West Virginia vs. the Environmental Protection Agency. This landmark case underscored the principle that regulatory agencies cannot surpass their designated authority without explicit approval from Congress.

The notion was recently dismissed by a different federal judge within the same court who was overseeing another SEC case involving a cryptocurrency platform. Judge Jed Rakoff, in declining a motion to dismiss filed by Terraform Labs, asserted that the cryptocurrency sector has not attained a level of significance that aligns with the precedents set by the Supreme Court.

The prospects of prompt congressional action on comprehensive cryptocurrency regulations remain uncertain. Although the House Financial Services and Agriculture Committees have recently made progress in proposing legislation aimed at tackling concerns related to market structure and stablecoins, these bills are still awaiting consideration by the full House. While it appears probable that the House will eventually move these bills forward, the path of these bills through a Senate evenly divided on the matter introduces an element of uncertainty to their ultimate passage.

Lummis's memorandum pointed out that in recent years, various legislators, including herself and Senator Kirsten Gillibrand (D-N.Y.), have introduced several bills that precisely delineate the scope of the SEC's regulatory authority and the areas in which its counterpart, the Commodity Futures Trading Commission (CFTC), assumes control.

“Each of these bills recognizes that the crypto industry does not fit entirely within existing securities laws and transcends the current statutory powers of the SEC. The multitude of interests at stake require a holistic approach beyond the scope of a single agency, including approaches taken around the world. Congress is attuned to these important considerations,” the brief said.

SEC Chair Gary Gensler, who has been at the helm of the regulatory body since 2021, expressed to CoinCryptoUs last year that, in his opinion, a significant number of cryptocurrency tokens already fulfill the criteria for securities regulation.

“It's about that common enterprise and that entrepreneurial effort which is the hallmark of investment contracts, which are securities. So I think that's where we are, that most of the tokens meet the traditional standards that our Supreme Court has laid out, and that we, the SEC, have a role to help protect investors and instill and enhance trust in these markets,” he said. “They don't just resemble securities, they are securities.”