Coinbase Says SEC Has No Jurisdiction Over Its Assets

In its first legal response to the lawsuit filed by the US Security Exchange Commission (SEC), Coinbase stated that the assets traded on its platform do not fall under the Commission’s jurisdiction. The exchange claims that the regulators have overreached and are in violation of due process.

Coinbase Counters SEC Lawsuit

On June 6, the US crypto exchange woke up to a lawsuit from the SEC claiming that Coinbase was operating as an unregistered broker, crypto exchange, and clearing agency. According to the SEC, these roles should be handled separately, as is the case in traditional security markets.

Additionally, the SEC named 12 assets that it claimed were securities. As a result, Coinbase was said to be transacting in unregistered securities because the Commission views the staking program as an investment contract.

However, in Coinbase’s answer to the SEC’s complaints, the exchange stated that the assets traded in its market are not within its purview. In the filing, Coinbase noted that none of the laws enacted since April 2021, when the SEC declared Coinbase registered, have given the commission power over digital asset exchanges.

Coinbase noted that “In May 2021, weeks after Coinbase went public, SEC Chair Gary Gensler testified before Congress that the Commission lacked statutory authority to regulate businesses like Coinbase. He said that only Congress could address the regulatory gap that Commission officials had long recognized.”

This therefore means that none of the assets are securitiess so they cannot also be considered investment contracts.

According to Coinbase, an investment contract refers to a situation where a seller sells an asset attached to an agreement to combine it with other assets bought by other investors and runs the business as a way to make money for all 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 exchange explained.

Throughout this legal battle, Coinbase has stood its ground, saying that the SEC hasd been aware of its entire operation since the platform went live. The same was iterated in the filing in which Coinbase said,” Six of these 12 assets were already on Coinbase when the SEC declared the Company’s registration statement effective. The SEC called none of them securities in 2021.“

Instead, Coinbase stated that the SEC chose enforcement over regulation and rulemaking despite the exchange of several attempts to ask for guidance from the agency on how best to conduct business in line with the law.

Coinbase Calls for Dismissal of Claims

In addition to its answer, Coinbase also wrote a letter to Judge Failla, the judge overseeing the case, of its intention to file a motion to have the case dismissed.

We welcome dialogue any time with any regulator, including the SEC, and believe new legislation and rulemaking is the right path forward. But the claims in this case go far beyond existing law – and should be dismissed. 2/2 https://t.co/3CID7vYURP

— paulgrewal.eth (@iampaulgrewal) June 29, 2023

In the letter, Coinbase claimed that by filing this lawsuit, the SEC violated due process as well as major doctrine questions. The exchange presented similar arguments to the response and asked that the SEC’s claims and complaints be dismissed due to lack of merits.

Crypto Mom Calls for Balanced Regulatory Environment

The SEC’s approach to matters concerning crypto has long been considered aggressive and more constricting than embracing. The Commissioner to the SEC, Hester Pierce, who is also dubbed the ‘Crypto Mom’ agreed to these sentiments.

In an interview with the Australian Blockchain Week, Pierce criticized the rigidity of the current SEC regime saying that it should be more accommodating to new technologies.

Protecting investors is important, but the government needs to have a good reason to prevent people from investing their own money as they choose: https://t.co/QgPm38iSrp

— Hester Peirce (@HesterPeirce) June 27, 2023

She also stated that the regulatory framework should stop classifying every new technology as a financial asset. Instead, she vouched for a balanced regulatory environment that encouraged innovation while providing necessary safeguards.

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