Coinbase shot back at the SEC, saying that the regulator’s claims in this case go far beyond existing law and should be dismissed. In response to the SEC’s lawsuit, Coinbase has filed an answer as well as a notice of intent seeking dismissal of the case. According to the filing, the SEC green signaled Coinbase’s public offering in April 2021 without once suggesting that the latter must register its operations.
Two years later, the regulator accused the firm of having failed to register as a national securities exchange, broker, and clearing agency since 2019. It was also alleged that 12 of the more than 240 tokens traded on Coinbase’s spot exchange are “securities.” Six of these 12 assets were already on Coinbase when the SEC declared the company’s registration statement effective. The SEC called none of them securities in 2021.”
The exchange also pointed out the inconsistencies of SEC Chair Gary Gensler, who in May 2021 testified
before Congress that the Commission lacked statutory authority to regulate crypto businesses like
Coinbase.Yet by the end of 2022, Gensler declared, “I feel that we have enough authority, I do, in this space” to require crypto companies to register as national securities exchanges.
Asserting that it is not opposed to regulation, Coinbase even requested rulemaking from the SEC to clarify, among other things, what the Commission considered to be securities. That July 2022 petition received no response.
Coinbase- Simply Taking Punitive Enforcement Actions Is Not Rulemaking
Again, when the exchange inquired, “Which digital assets traded on our exchange do you believe constitute securities?” after the Wells Notice issuance on March 22, 2023. The agency stated that it was “not in a position to identify them.”
None of the assets the SEC has now identified are in fact securities, and for that and
other reasons, secondary transactions in those assets are also not securities. Nor are Coinbase’s
“staking” services a securities offering. None of these satisfy Howey’s definition of an “investment
contract” — the only type of “security” the SEC says is at issue here.
Last but not least, even if the SEC possessed the necessary legal authority, an agency’s revised definition of an “investment contract” would require official rulemaking by that agency, the exchange claimed. By announcing that there is supposed regulatory authority through punitive enforcement actions rather than through notice-and-comment rulemaking, the SEC has committed a “violation of due process and a misuse of an agency’s discretion.” Therefore,” it is neither prudent nor lawful, and the SEC’s claims must fail,” the filing noted.