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Coinbase filed a movement to appeal a judge's ruling last month that allowed the SEC's lawsuit against them, Paul Grewal, Coinbase's chief legal officer, said in an article today. The appeal, if granted, would allow the Second Circuit Court to examine the authority of the United States Securities and Exchange Commission (SEC) to classify certain digital asset transactions as investment contracts, which could suspend the current trial.
Today @Coinbase filed a brief requesting the Court's permission to file an interlocutory appeal in our @SECGov case on this decisive question: whether an “investment contract” requires something contractual – we believe it does – the SEC disagrees. 1/5
– paulgrewal.eth (@iampaulgrewal) April 13, 2024
Coinbase's motion focuses on whether purchases of digital assets qualify as “investment contracts” under SEC rules, a resolution that would have far-reaching implications across the entire asset industry digital. The company is seeking a clear ruling from a higher court to end the uncertainty.
According to Coinbase, the definition of an investment contract includes the need for post-sale obligations, a standard supported by both the Supreme Court and the Second Circuit for nearly a century. Despite this, the SEC has actively adopted a new interpretation, suggesting that the mere integration of digital assets into a token's ecosystem could constitute an investment contract.
“In the 90 years since the federal securities laws were enacted, neither the Supreme Court nor the Second Circuit has ever found an investment contract without an after-sales obligation. But in a recent series of enforcement actions against the digital assets industry, the SEC has advanced the theory that such a requirement is not required,” Coinbase’s legal defense said.
This approach has sparked widespread debate among lawmakers, regulators, and industry participants, with even SEC commissioners acknowledging the regulatory uncertainty plaguing the crypto industry, Coinbase notes. The company says the SEC's broad interpretation creates uncertainty in an industry that has seen exponential growth and economic influence.
Coinbase's legal defense disputes the SEC's claims, saying the transactions in question lack the traditional elements of an investment contract. According to the company, the Second Circuit's appeal is an appropriate vehicle to provide urgent guidance on this important legal issue.
“The application of Howey to digital asset transactions raises difficult questions. The fact that members of Congress, senators, and regulators were divided in their responses speaks to the difficulty of the subject, and the divergent legal results illustrate the point. As a result of these divisions, a “cloud of legal uncertainty hangs over” the digital assets industry… This case provides the perfect vehicle for the Second Circuit to remove it quickly and cleanly,” Coinbase’s legal defense said.
Today's motion comes after a US court recently rejected Coinbase's appeal in a lawsuit filed by the SEC last year. Judge Failla found that the SEC's evidence was sufficient to require Coinbase's registration as an exchange, broker-dealer and clearinghouse.
However, she sided with Coinbase on the separate issue of their wallet product, concluding that it was not related to SEC securities fees.
Following the court's rejection, Grewal said Coinbase would continue its legal battle against the SEC.
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