The anticipated pre-motion hearing between leading cryptocurrency exchange Coinbase and the Securities and Exchange Commission (SEC) on July 13 could have impacts reaching beyond both parties, say legal insiders. It’s considered as an important event for the broader crypto industry, as it will likely mark the tone of the litigation. Set up by Coinbase after a complaint filed by the SEC, the proceedings will mostly carry procedural and administrative significance.
Many crypto watchers have their sights set on Coinbase’s agenda for the hearing. The exchange is likely to argue on the grounds of the tokens’ status under the Howey test, which determines if particular transactions qualify as investment contracts. In essence, Coinbase is looking to dispute the jurisdiction of the SEC, arguing that the tokens do not constitute securities according to this test.
Meanwhile, the SEC responded to Coinbase’s motion with a strong critique, claiming that the platform knowingly transgressed securities laws. Moreover, it accused Coinbase of trying to establish its own definition of an investment contract, a move that allegedly flies in the face of precedent set by over 75 years of legal interpretation formulated under the Howey framework.
Coinbase’s motion refers to its 2021 initial public offering (IPO), a significant validator of its operations, indicating that the SEC was fully aware of its business activities. However, being open about these processes may not be sufficient to win in court. Federal securities laws that govern the IPO process primarily focus on the disclosure of information to potential investors.
Notably, to go public, Coinbase ensured a comprehensive legal analysis of each asset before its trading on the platform. However, the SEC has since expressed their belief that the platform is now engaging in trading securities, as well as offering its own unregistered securities. Until there’s agreement between the parties in this case, it could take a considerable time to reach a conclusion.
This event brings to mind the ongoing legal dispute involving Ripple and the SEC, as the commission also deemed Ripple’s token XRP to be a security. Ripple’s CEO commented that the SEC intentionally caused confusion regarding the rules, exploiting this ambiguity through enforcement.
In summary, the outcome of this legal stand-off is set to reverberate throughout the crypto world. The parameters defining securities and regulators’ jurisdiction within digital assets and cryptocurrency sectors hang in the balance. If this were to result in legislative changes, the implications could echo throughout the industry, shifting the landscape for other participants.
Source: Cointelegraph
