SEC Opposes Coinbase’s Motion for Judgment, Argues Crypto Assets Qualify as Securities

News | October 4, 2023 By:

On Tuesday, October 3, 2023, the U.S. Securities and Exchange Commission (SEC) filed an opposition brief in response to a motion for judgment filed by Coinbase, Inc. and Coinbase Global Inc. in an ongoing case in the U.S. District Court for the Southern District of New York.

The SEC originally filed a complaint against Coinbase in June 2023 alleging that Coinbase was operating an unregistered securities exchange, brokerage, and clearing agency in relation to certain crypto asset transactions on its platform. Coinbase filed a motion for judgment on the pleadings in August, arguing that the crypto assets in question do not qualify as securities under the Howey investment contract test.

In its opposition brief, the SEC asserts that the crypto asset transactions on Coinbase’s platform do satisfy the Howey test for investment contracts and therefore qualify as securities. The SEC argues that investment contracts do not require formal contractual agreements or profit-sharing arrangements under Howey and subsequent case law. It also contends that the nature of an instrument as a security does not change based on whether it is sold in a primary or secondary market.

The SEC further argues that the major questions doctrine, cited by Coinbase, is intended to restrain agencies from regulatory overreach and does not apply to an agency’s enforcement of existing laws enacted by Congress. It states the circumstances warranting application of the doctrine are absent here.

Additionally, the SEC asserts that Coinbase engages in unregistered brokerage services through its Coinbase Wallet app by actively soliciting customers, routing trade orders, and receiving transaction fees. It also defends its allegations that Coinbase’s staking program for certain crypto assets constitutes an investment contract.

In conclusion, the SEC contends that Coinbase operated as an unregistered broker and exchange for transactions in securities and requests that the court deny Coinbase’s motion for judgment in its entirety. The court’s ruling on the motion will help define the boundaries of securities regulations as applied to the emerging crypto asset industry.

A copy of the original filing can be found here.