Coinbase, one of the largest crypto exchanges globally, stood its ground during a hearing on Wednesday to determine whether it committed securities violations. The exchange has filed a motion to dismiss the suit against it.
The U.S. Securities and Exchange Commission (SEC) filed the suit in June 2023, just one day after it took legal action against Binance, the largest crypto exchange by volume, over securities matters.
In its claims against Coinbase, the SEC also alleged that the 13 cryptocurrencies available for trading on the exchange were securities. This list includes major tokens such as Solana, Cardano, and Polygon. Interestingly, the Binance suit also mentioned 12 crypto assets as securities. Out of these, six were found to be overlapping with those listed in the SEC’s case against Coinbase: SOL, ADA, MATIC, FIL, SAND, and AXS.
Coinbase has firmly requested New York District Judge Katherine Polk Failla to dismiss the suit, stating that cryptocurrencies should not fall under the jurisdiction of the SEC as they are not shares in companies (stocks). The exchange, along with other crypto firms, believes that the SEC has overstepped its boundaries.
During the Manhattan court hearing, Judge Failla questioned the SEC. She asked the agency to clarify which elements of crypto assets constitute investment contracts. The judge also expressed her concerns that the SEC is seeking permission to “expand the definition of what constitutes as a security.”
Patrick Costello, an SEC assistant chief litigation counsel, argued that since crypto assets are often connected to a blockchain network or a business enterprise, they can be considered similar to investment contracts. The agency’s argument is that Coinbase is attempting to establish its own version of the Howey Test, the legal framework used to determine if an asset is an investment contract.
