- The SEC has claimed that Coinbase knows it has been breaking securities laws over the years
- The agency filed a brief in its lawsuit against the exchange last week that challenged Coinbase’s defense
- The SEC argued that Coinbase has misapplied securities laws in its defense
The Securities and Exchange Commission last week claimed that Coinbase knew it was flouting securities laws, claiming that the exchange made a “calculated decision” to act as an unregistered securities intermediary. The allegation comes in the latest filing in the case, to which Coinbase’s legal chief Paul Grewal responded by saying that the SEC had ignored several key factors in its filing, such as crucial aspects of the Howey test for securities and the comments of its own Chair, Gary Gensler.
SEC: Coinbase Used Howey Test
The SEC sued Coinbase last month, claiming that it acted as a broker-dealer of unregistered securities in a case that many had seen coming for months. Coinbase responded two weeks ago saying that the coins at the heart of the SEC charges are not investment contracts and therefore are not securities, meaning they do not come within the SEC’s purview. This is all playing out against the backdrop of Coinbase’s demands that the SEC lay out its plans for crypto regulation as opposed to its perceived destruction of the industry.
In its filing, the SEC argued that Coinbase used the Howey test to determine whether the coins it was listing were securities or not, which showed that the exchange was using the exact framework its lawsuit is relying on. The SEC also argues that Coinbase has misapplied the law when it comes to its arguments over whether contracts constitute securities, invoking its own case precedent to make its argument.
Grewal Accuses SEC of Ignoring Inconvenient Truths
Grewal noted in a tweet thread that the SEC’s reply ignores several key areas that need addressing, including that to be classed as a security there needs to be more than just an investment of money, the comments of Chair Gary Gensler last month over the securities issue, and recent “unmistakable warnings of the Supreme Court just last week against regulatory overreach in major questions reserved to Congress”:
After Coinbase gave notice of it intent to move to throw out their case, we consented to a few extra days for the SEC to explain why it intends to oppose. They’ve now filed and, sadly, it’s more of the same. 1/6
— paulgrewal.eth (@iampaulgrewal) July 7, 2023
We can already see the battle lines being drawn in this seminal case for the crypto industry, and it’s clear that it will come down to the individual judge’s interpretation of Securities laws to decide the case. Given that the SEC has sued Coinbase in its own backyard, this could spell trouble for the exchange when it comes to such interpretations.