In a recent response to Coinbase’s request to dismiss the charges filed by the United States Securities and Exchange Commission (SEC), the regulatory agency argued that the cryptocurrency exchange was well aware that its actions violated federal securities laws. The SEC’s filing on July 7 shed light on Coinbase’s alleged calculated decision to act as an unregistered securities intermediary, undermining the exchange’s claims of innocence.
The SEC initiated legal action against Coinbase, along with Binance and its US affiliate, in early June. Coinbase swiftly responded by filing a request to dismiss the charges, asserting that the SEC had previously approved its business model when it allowed the exchange to go public in 2021. Coinbase reiterated its attempts to engage in positive regulatory dialogues with the US watchdogs, seeking clarity on the agency’s policies regarding cryptocurrencies.
SEC’s Counterargument
In its response, the SEC highlighted Coinbase’s own actions that contradicted its claims of unawareness. The regulatory agency pointed out that Coinbase had repeatedly warned its shareholders, both before and after its listing on NASDAQ, about the potential risk of its traded crypto assets being deemed securities and violating federal securities laws. The SEC’s filing suggested that Coinbase’s argument, relying on the registration statement as proof of the SEC’s approval, was flawed.
The SEC dismissed two arguments made by Coinbase in its request for dismissal. Firstly, Coinbase claimed that an investment contract must involve a formal, common law contract. However, the SEC stated that this interpretation was incorrect. Secondly, Coinbase argued that even if a crypto asset is considered an investment contract when initially offered and sold, it ceases to be one when traded between non-issuers on a platform like Coinbase. The SEC refuted this argument, asserting that secondary market transactions are not mere “asset sales” and can still fall under the category of investment contracts.
Coinbase’s Awareness of Violations
Based on the SEC’s response, it becomes evident that Coinbase had knowledge of the potential violations of US securities laws associated with its operations. The filing suggests that Coinbase knowingly disregarded decades of established legal precedents, such as the Howey test, which determines whether an investment contract exists. The SEC’s argument implies that Coinbase’s claims of innocence and lack of awareness hold little credibility.
The SEC’s response to Coinbase’s request to dismiss the charges sets the stage for a potential legal battle between the cryptocurrency exchange and the regulatory agency. This case could have far-reaching implications for the crypto industry, as it may shape future regulations and compliance standards. The outcome of this legal dispute will not only impact Coinbase but also serve as a precedent for other exchanges operating in the United States.