Coinbase Challenges SEC Over Cryptocurrency Classification

Table of Contents

• Key Arguments in Manhattan Court
• Senator Lummis Supports Coinbase
• SEC Cites ‘Howey Test’
• Judge Reserves Decision

Key Arguments in Manhattan Court

Oral arguments took place in Manhattan earlier this week regarding a lawsuit filed against cryptocurrency exchange Coinbase by the U.S. Securities and Exchange Commission (SEC).

The SEC filed an amicus curiae brief in June 2023 alleging that Coinbase should have registered as a securities exchange because some of the cryptocurrencies sold on its platform are securities.

However, Coinbase responded in August denying that the tokens in question are securities. The cryptocurrency exchange accused the SEC of due process violations, discretion abuse, and inconsistent application of securities laws.

Coinbase argues that the SEC has overstepped its authority and that the dispute falls outside of the agency’s delegated powers.

Senator Lummis Supports Coinbase

U.S. Senator Cynthia Lummis (R-Wyoming) filed an amicus curiae brief supporting Coinbase, suggesting that the SEC’s classification of crypto-assets as securities exceeds its authority and infringes on congressional lawmaking and separation of powers.

Judge Katherine Polk Failla questioned the SEC’s lawyers on why she should not side with Lummis’ perspective in potentially dismissing the lawsuit.

SEC Cites ‘Howey Test’

The SEC’s defense relied on citing the “Howey test,” a staple in securities law based on a 1946 Supreme Court case which defines a security as “an investment contract.”

However, Coinbase claims the SEC is misapplying the Howey test to cryptocurrencies that do not fit the criteria.

Judge Failla acknowledged that a resolution might be dependent on congressional action to clarify cryptocurrency regulation.

Judge Reserves Decision

Judge Failla has yet to announce a decision from the hearing, evidently reserving judgment on the complex regulatory and jurisdictional questions at the heart of the SEC’s lawsuit against Coinbase. Stay tuned for further updates.

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