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Coinbase Seeks to Dismiss SEC Suit, Cites Lack of Authority

Coinbase Seeks Dismissal of SEC Lawsuit

In a motion filed last Friday, Coinbase is urging a judge to dismiss the lawsuit filed by the Securities and Exchange Commission (SEC) against the company.

Coinbase argues that it does not engage in securities trading, challenging the validity of the SEC’s claims.

The SEC took legal action against Coinbase in June, alleging that the cryptocurrency exchange violated securities regulations by operating without proper registration as a broker, exchange, and clearing agency. Additionally, the SEC accused Coinbase of selling unregistered securities through its staking-as-a-service initiative, where users are rewarded with cryptocurrency for participating in the proof-of-stake protocol on the blockchain.

“The transactions over Coinbase’s platform and Prime are not, and do not involve, contractual undertakings to deliver future value reflecting the income, profits, or assets of a business. They are commodity sales, with the obligations on both sides discharged entirely the moment the digital token is delivered in exchange for payment,” the filing said.

We covered the SEC suing Coinbase in an article here.

In a publication revealing Coinbase’s request for dismissal, Grewal asserts that “the SEC has violated due process, abused its discretion, and abandoned its own earlier interpretations of the securities laws,” further stating that the “SEC has trampled the strict boundaries on its basic authority set by Congress.”

Despite these arguments, the SEC has proceeded with lawsuits against Binance, crypto influencer Richard Heart, and Tron founder Justin Sun for allegedly selling unregistered securities.

The submission also highlighted the recent ruling in the SEC’s lawsuit against Ripple, stating that the underlying facts were “substantially identical to those alleged here.” A federal judge ruled that Ripple’s programmatic sales, where it listed XRP on exchanges for anyone to purchase, were not considered securities transactions, while Ripple’s direct sales to institutional clients were.

Meanwhile, Coinbase argued that SEC allegations suggesting Coinbase’s staking and wallet services breach securities laws should be dismissed for similar reasons.

Coinbase also reiterated the “Major Questions Doctrine,” previously raised in a prior filing, highlighting that the lawsuit could significantly broaden the regulatory scope to encompass the cryptocurrency sector.

Coinbase attached 10 distinct exhibits to its motion, including transcripts from a hearing in the SEC’s litigation against LBRY and rulings from past cases involving inquiries related to the Howey Test. The Howey Test, established by the Supreme Court in 1946, provides a benchmark for regulators to ascertain the nature of an investment contract.

The SEC has until October 3 to submit a response to Coinbase’s motion, with the window for filing amicus briefs in support of Coinbase open until August 11.

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