U.S. crypto exchange Coinbase claimed that digital assets listed on its platform fall outside the U.S. Securities and Exchange Commission's (SEC) purview in its first legal response to the regulator's lawsuit.
The SEC sued Coinbase at the beginning of June, alleging that a dozen of the cryptocurrencies offered through its wallet or trading platforms were unregistered securities. In its answer, filed early Thursday, Coinbase claimed that these cryptos are not investment contracts and therefore are not securities.
It's an argument Coinbase has advanced before in public statements like tweets and blog posts, but Thursday's filing goes into further detail explaining the company's position: cryptos on the exchange's secondary market platform are not part of any arrangements where a promoter is selling an asset tied to a contract, the company claimed, basically spelling out the Supreme Court's Howey case as an example.
The issuers of the tokens owe no obligations to investors, the filing said.
"Because no such obligations are carried in the transactions over Coinbase’s secondary market exchange, and because the value that Coinbase purchasers receive through these transactions inheres in the things bought and traded rather than in the businesses that generated them, the transactions are not securities transactions," the filing said.
Some of the filing continues to reiterate Coinbase's already-live public statements, arguing that current SEC Chair Gary Gensler changed his position on the regulator's authority over crypto between taking office in April 2021 and mid-2022; saying the company has asked for regulation; and noting that Congress has started looking at the issue of crypto regulation.
"Even were the SEC correct that the assets and services it identifies are within the scope of its existing regulatory authority, this action must be dismissed on the independent grounds that it violates Coinbase’s due process rights and constitutes an extraordinary abuse of process," the filing said. "For years, Coinbase has voluntarily submitted to regulation by multiple overlapping regulatory bodies, has adhered to the public and limited formal guidance from the SEC, senior SEC Staff, and the courts about the application of securities law to its industry, and has begged the SEC for guidance about how it thinks the federal securities laws map onto the digital asset industry as the SEC’s actions reflected an escalating but undisclosed change in its own view of its authority."
"The SEC has chosen" to pursue enforcement actions over rulemaking, the filing claimed.
The rest of the filing contains a point-by-point answer to the SEC's lawsuit.
In a separate document also filed to the judge overseeing the case, Coinbase alleged that its due process rights were violated when the SEC brought the lawsuit and that the SEC's lawsuit may violate the "major questions" doctrine. The company asked the judge to let it file for judgement and set a 7-week schedule for its motion, the SEC's opposition and its own response to the opposition.
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