The U.S. Securities and Exchange Commission (SEC) has responded strongly to Coinbase’s request for an interlocutory appeal in their ongoing legal dispute, accusing the cryptocurrency exchange of attempting to manipulate legal interpretations to fit its interests. The SEC’s position was outlined in a recent filing with the U.S. District Court for the Southern District of New York.
SEC’s Critique of Coinbase’s Legal Maneuvers
In the May 10 filing, the SEC argued that Coinbase’s efforts to frame a question for appeal under 28 U.S.C. § 1292(b) are misguided and self-defeating. The agency highlighted that Coinbase is discontent with the application of the Howey test—the standard used to determine what constitutes a security under U.S. law—and the existing regulatory framework. The SEC’s filing poetically noted that Coinbase “having made the weather, cannot now complain that it is raining,” suggesting the company must face the regulatory environment it operates within.
Disagreement Over Legal Definitions
The core of the dispute revolves around Coinbase’s argument that an investment contract, as defined by the Howey test, cannot exist without a post-sale obligation—a point the SEC contests. Coinbase posits that this is a controlling question that could decisively influence the lawsuit’s outcome. However, the SEC countered that Coinbase has failed to present a consistent theory or clarify what constitutes a “contractual undertaking,” thereby weakening its case for the appeal.
SEC’s Stance on Contractual Undertakings
According to the SEC, the demand for “contractual undertakings” post-sale has never been a criterion in 80 years of legal precedent. The agency stressed that interlocutory review is unjustified merely because Coinbase proposes a new legal test that deviates from long-established legal principles.
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Background of the Legal Conflict
The legal battle began in June 2023 when the SEC sued Coinbase for allegedly violating federal securities laws by listing 13 tokens it claims are securities. Coinbase has consistently argued that the transactions on its platform do not qualify as securities and therefore should not be subject to SEC regulations—a claim the SEC firmly rejects. The SEC maintains that some transactions on Coinbase’s platform qualify as “investment contracts” and are thus securities by law.
The ongoing legal proceedings underscore a significant clash over the regulatory scope of cryptocurrency operations in the U.S., with potential implications for the broader industry’s interaction with federal securities laws.
