Tension between the SEC and Coinbase continues.
It should be remembered that last June, the SEC denounced the main cryptocurrency exchange in the United States. The government entity maintained that the company illegally offered securities on its platform and a brokerage and clearing agency service without registering with the regulator.
At the end of August, Coinbase responded. Indeed, the defendant filed a motion to dismiss the SEC’s indictment. In his defense, he argued that cryptocurrency tokens held as securities do not constitute “investment contracts.” Hence, the SEC, as Coinbase understands, lacks sufficient regulatory authority on matters related to cryptocurrencies.
To the motion presented by the company, the government agency presented the corresponding opposition motion on October 3, which, according to CourtListener, consists of about forty pages. There, the SEC requested that the court reject Coinbase’s motion in its entirety. The SEC, in effect, has presented an argument structured in four aspects to justify that its initial demand is “sufficiently adequate.”
One of the points the SEC maintains is that Coinbase “complains and seeks to blame the SEC for its current situation.” The company insists on this because it alleges that the government entity “approved Coinbase’s violating conduct” when it went public. Likewise, Coinbase believes that the statements of SEC Chairman Gary Gensler in a hearing before the United States Congress are not consistent with the Court’s application of federal securities laws.
The “Howey Test” and the question of its application
The SEC, it seems clear, insists on dismissing accusations of its lack of authority to regulate transactions involving cryptocurrencies. Furthermore, he says, Coinbase should not be surprised by the lawsuit since it “has always known that a cryptocurrency bought and sold on its trading platform is a security if it meets the Howey test.” Now, what is the Howey test?
This is a legal test specific to the United States. Through it, it is determined whether a particular asset constitutes a security. The name of the test arises from a United States Supreme Court case that took place almost eighty years ago, in 1946, between the SEC and WJ Howey Co., where the criteria were established.
That said, the agency maintains that said test is “flexible” and adaptable” to cryptocurrencies. The document refers to statutes and jurisprudential documents with sufficient relevance to justify the applicability of the test to cryptoassets.
Lack of criteria does not constitute a criterion
In the opinion of Paul Grewal, legal director of Coinbase, in a thread published on his X account – formerly Twitter –, the latest actions of the SEC are “more of the same.”
For Grewal, tokens are not securities according to the most recent court decisions. With this, he seems to be referring to the defeat of the SEC in the case it had with Ripple with the XRP values.
Grewal maintains that the SEC does not have a clear criterion to justify what is and what is not a security, and even more so why. Indeed, he says that “everything from Pokémon cards to stamps” could be securities under the SEC’s definition. The platform, however, hopes to present a response on October 24.