Coinbase Appeals SEC’s Ruling on ‘Investment Contracts’

Coinbase, the American cryptocurrency exchange, has submitted a motion to certify an appeal in response to the lawsuit initiated by the Securities and Exchange Commission (SEC) against the company.

On April 12, Coinbase’s legal team lodged a request with the court, seeking approval to pursue an interlocutory appeal in its ongoing case.The central issue revolves around whether the term “investment contract” necessitates a contractual component.

Coinbase asserts that it does, while the SEC holds a contrary stance.An interlocutory appeal occurs when a decision made by a trial court is challenged while other elements of the case continue.

Coinbase Mounts a Defense
Paul Grewal, Coinbase’s Chief Legal Officer, stated that the SEC’s actions against the company and other crypto entities “exceed the legal authority granted by Congress and cast an unjust shadow over US digital asset innovation.”

The SEC initiated a lawsuit against Coinbase in June 2023, alleging that its facilitation of crypto asset trading amounted to operating as an unregistered securities exchange and broker-dealer.
Coinbase sought to dismiss the alleged infractions, contending that the digital asset transactions in question didn’t meet the criteria of “investment contracts” under the Howey test because the SEC didn’t assert any post-sale obligations or contractual commitments by the issuers.

Coinbase is currently appealing, challenging whether digital asset transactions lacking post-sale obligations can be classified as “investment contracts” and thus fall under SEC regulation.

Grewal emphasized that Coinbase’s stance is shared by others, noting that “The SEC itself has made the identical arguments.”

In April, the court ruled partially in Coinbase’s favor, affirming that secondary sales of crypto assets on the platform don’t breach the Securities Exchange Act.

The Crypto Battle Rages On
The SEC’s pursuit of cryptocurrencies remains relentless, evident in its recent announcement of an impending legal action against the decentralized exchange Uniswap on April 10.

In March, the Ethereum Foundation faced scrutiny from the SEC, as they issued a subpoena to investigate whether ETH qualifies as a security.

SEC chair Gary Gensler suggests that Ethereum’s transition to a proof-of-stake consensus mechanism might subject it to regulation as an “investment contract,” although he has not definitively confirmed this when pressed for clarification.

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