Coinbase responds to SEC’s lawsuit, says some tokens are not securities

Coinbase has asked the court to dismiss the lawsuit filed against the company by the US Securities and Exchange Commission (SEC), stating that the tokens mentioned in the lawsuit are not “investment contracts” and therefore do not qualify as crypto asset securities. 

Coinbase refutes the SEC label of digital assets on its platform 

U.S. crypto exchange giant Coinbase filed a 177-page response to the SEC’s complaint on June 28, stating that the SEC lacked the regulatory power to oversee digital assets.

In June, the SEC sued Coinbase for operating as an unregistered broker, national securities exchange, and clearing agency. The lawsuit also mentioned Coinbase’s staking program along with 13 tokens including DASH, NEXO, FLOW, SOL, and ADA, labeling them as securities. 

Meanwhile, the document claimed that Coinbase’s business remains the same in 2023 as it was in 2020 when the company first requested to become a publicly traded firm via a direct public offering.

As stated in the filing, six out of the 12 crypto assets labeled by the SEC as securities were already trading on the platform when the SEC declared Coinbase’s registration statement effective in 2021, adding that the agency did not see them as crypto assets securities at the time. 

“None of the assets the SEC has now identified are in fact securities, and for that and other reasons, secondary transactions in those assets are also not securities. Nor are Coinbase’s “staking” services a securities offering. None of these satisfy Howey’s definition of an “investment contract” — the only type of “security” the SEC says is at issue here.”

Excerpt from Coinbase’s response to the SEC.

SEC’s actions beyond its regulatory authority 

Meanwhile, Coinbase believes that the SEC has been acting beyond its regulatory authority, stating that the Commission instead expanded its regulatory ambit on digital assets, contrary to previous statements made by SEC Chairman Gary Gensler to Congress in 2021, where he said that the SEC did not have enough authority to regulate the industry and said that only the Congress could address the regulatory gap in the sector. 

But by the end of 2022, Gensler reportedly claimed that the SEC had sufficient control to regulate cryptocurrency exchanges. The filing noted that the SEC has resorted to using an aggressive approach as evidenced by its numerous enforcement actions against crypto businesses, rather than notice-and-comment rulemaking following a change in expansion of its regulatory authority. 

“The SEC’s claims lack all merit. Its still-evolving legal position rests on a novel, atextual, and acontextual construction of the word “investment contract” in the federal securities statutes that runs directly contrary to SEC officials’ public admissions about the limits of their agency’s statutory authority.”

Excerpt from Coinbase’s response to SEC.

In a separate document, Coinbase said that the SEC’s action “violates due process and constitutes an abuse of discretion” and asked the court to grant its briefing schedule, which spans 49 days and covers Coinbase’s motion, SEC’s opposition to the motion, and reply to the SEC’s opposition.