The pre-motion hearing that will take place on July 13 between the Securities and Exchange Commission (SEC) and crypto exchange Coinbase should provide an idea of the tone of the litigation and its potential impact on the wider crypto industry, legal sources told Cointelegraph.
Previously scheduled for August, the conference is a typical request made by any party seeking a decision on a particular issue before trial. In this case, the motion was requested by Coinbase at the end of June. The exchange wants Judge Katherine Polk Faila to dismiss the complaint filed by regulators on June 5.
As the first hearing between the parties, the conference will likely be “procedural and administrative in nature”, explained Mark Kornfield, securities attorney and regulator. “Coinbase will try to position this case as one that is ready for early termination for various reasons. Including that the token is not a security under Howey’s test and thus the commission exceeds its jurisdictional authority,” Kornfield added.
Screenshot of Coinbase’s motion on June 28. Source: CourtListener.
In its reply to the July 7 motion, the SEC made strong criticism of the exchange, including that it was aware of possible securities law violations, and was considering “waiving more than 75 years of control laws under Howey” in an effort “to build on its testing.” itself for what constitutes an investment contract.”
The Coinbase Movement also refers to its initial public offering in 2021. According to the exchange, the SEC is now seeking fees for activities that are “fully explained” to regulators and the general public in recent years.
Even though the SEC was aware of Coinbase’s business activities, those claims were not enough to win a case in court. According to corporate and securities attorney Roland Chase, federal securities laws governing the process of “going public” are disclosure-based. “All that the SEC is authorized by Congress to do is review public documents and provide comments and ask questions in an effort to increase corporate disclosures to potential investors,” Chase told Cointelegraph.
Chase also noted that in order to go public, Coinbase reported to the SEC that each asset will undergo a comprehensive legal analysis before allowing it to trade on its platform to ensure the securities are not traded. “The SEC finally felt comfortable with all of these disclosures and allowed Coinbase to go public,” he explained, adding that the SEC “now thinks that Coinbase actually trades securities on its platform. In addition, the SEC thinks that Coinbase offers its own unregistered securities.”
Without an agreement between the parties, this case may take years to resolve. A well-known example is Ripple’s legal battle that has dragged on since 2020 when the SEC also deemed its XRP token a security. In a recent video about the ongoing litigation, Ripple CEO Brad Garlinghouse said the SEC has “deliberately created confusion about regulations, and they are using that confusion through enforcement.”
Magazine: Crypto Regulation — Does SEC Chairman Gary Gensler have the final say?