Crypto Exchange Coinbase Cites Major Questions Doctrine in SEC Lawsuit Response

News | October 25, 2023 By:

On October 24, 2023, cryptocurrency exchange Coinbase filed a reply memorandum in response to a lawsuit filed by the Securities and Exchange Commission (SEC) in July. The SEC accused Coinbase of operating unregistered securities exchanges by facilitating the trading of digital tokens that meet the definition of securities.

In its memorandum, Coinbase argues that the tokens traded on its platform are not securities and therefore fall outside the SEC’s jurisdiction.

Coinbase’s argument against the SEC’s lawsuit hinges on two key points. First, the company contends that the tokens traded on its platform do not meet the legal definition of “investment contracts,” which would require SEC registration. Coinbase believes that the SEC’s approach is misguided and ignores decades of legal precedent. Specifically, the company argues that an investment contract must include a contractual commitment by the seller that gives the buyer some legal claim, which the SEC has not identified in its lawsuit.

Second, Coinbase is invoking the Major Questions Doctrine, a legal theory that suggests that courts should assume that Congress does not give executive agencies like the SEC the authority to regulate important issues of economic and political significance. Coinbase argues that cryptocurrencies are such an important issue and that the SEC is overstepping its bounds by trying to regulate all commerce involving investment. This theory was recently mentioned by the Supreme Court when it rejected President Joe Biden’s plan for student loan forgiveness and ruled that it was unconstitutional.

The lawsuit has been ongoing since July, and a federal judge will now decide whether to accept Coinbase’s motion and dismiss the SEC’s lawsuit.

A copy of the original filing can be found here.