- The SEC sends a letter to a New York judge
- It is a response to some affirmations from Coinbase
- Both parties remain at loggerheads
The SEC filed a lawsuit against the crypto exchange claiming it disregarded securities laws.
What Was In The Letter?
The letter, sent on July 7 to a district judge in New York, Judge Katherine Polk Falia, alleged that Coinbase was aware of the laws it violated. It read,
“Since becoming a public company, Coinbase has repeatedly informed its shareholders of the risk that the crypto assets traded on its platform could be deemed securities and therefore that its conduct could violate the federal securities laws.”
The SEC insinuated that the crypto exchange was purposely “ignoring more than 75 years of controlling law under Howey” in a bid “to construct its test for what constitutes an investment contract.”
Previously, on June 28, the exchange mentioned its intention to file a motion for judgment to the court. It also alleged that SEC chair Gary Gensler said,
“There is not a market regulator around these crypto exchanges; only Congress could confer authority to regulate crypto exchanges.”
This was off the back of the SEC’s accusation on June 6 that it had been offering unregistered securities since 2019.
All of these led to a pre-motion conference between the SEC and Coinbase on July 13 that lasted more than two hours. It was presided over by Judge Katherine Polk Falia for the Southern District of New York.
How the Pre-motion Conference Went
Judge Falia challenged the SEC’s ability to protect U.S. crypto investors. To her, there was a visible disconnect between the SEC wanting to regulate crypto and a plot to enforce securities laws.
The SEC’s counsel noted, “The SEC is not looking to regulate crypto in this country.”
She responded, “It seems like to consider which conduct to regulate, you’d have to consider what to regulate.”
Both parties also argued about other topics such as Coinbase’s IPO filings, staking program, and the nature of coins like BTC and ETH.
Ultimately the Judge was less than impressed by the SEC’s arguments, highlighting its inability to sufficiently define what a “security” meant to the public due to the Howey test’s vagueness.
“What is the difference between those that are not (securities) and those that are, and how has the SEC communicated that to the investing public?”
While a final ruling has not yet been made, the crypto community closely follows the case. There are hopes that Coinbase will be as successful as Ripple in its lawsuit against the SEC.
Without a doubt, the result of the case would affect the value of all crypto assets, most especially the native ones of networks that are in the cross-hares of the U.S. regulator.
What is Coinbase’s Fate After Ripple’s Win?
Although Ripple’s partial victory against the SEC portends a good omen for Coinbase, some analysts have called for caution. They believe that the former has a solid case against the latter.
This is on the premise that the exchange performed an act tantamount to guilt – halting its staking service after XRP was ruled out as a security.
The SEC argues that the exchange sells unregistered securities through its staking service, Coinbase Earn—an allegation the exchange flatly denies.
Nonetheless, the exchange has provided a confident front so far, saying this,
“We also reiterated that we stand by our listings process – we don’t list securities today – and repeatedly invited the SEC to raise any questions about any asset on our platform.”
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