Coinbase Urges Court to Dismiss SEC Case

Coinbase Urges Court to Dismiss SEC Case – On August 4, Coinbase responded to the SEC’s lawsuit, refuting the allegations of facilitating unregistered trading of securities. The company argued that the SEC lacks the authority to regulate digital assets in such a manner. In their court filing, submitted on Friday, Coinbase contended that the SEC’s claims are based on an overly broad interpretation of the term “investment contract,” departing from established precedent and statutory text. 

Coinbase asserted that the SEC failed to demonstrate that the transactions on its exchange involved contractual rights entitling buyers to future profits or income from issuers, a crucial element of an investment contract. The motion claims that the SEC’s theory, which suggests buyers expect profits based on issuer efforts to enhance token usefulness, improperly classifies these assets as securities. 

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Additionally, Coinbase invokes the major questions doctrine, asserting that courts should defer significant regulatory actions to Congress unless there is explicit authorization. “The SEC has violated due process, abused its discretion, and abandoned its own earlier interpretations of the securities laws,” the court filing details. 

“But there is a more fundamental problem with its case—one the chair recognized two years ago and that entitles Coinbase to judgment on the pleadings now: The subject matter falls outside the agency’s delegated authority.” Furthermore, Coinbase disputes the SEC’s assertion that it acted as an unregistered broker by offering its wallet software. 

Coinbase argues that the wallet functions as a passive tool, allowing users to store assets they control, and does not serve as a way to carry out transactions. Regarding the SEC’s claim that Coinbase’s staking services constitute unregistered securities, the company’s lawyers argue that this allegation is unfounded. They assert that Coinbase’s involvement in staking is purely technical and not managerial in nature.

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Coinbase paints the SEC’s action as an unjustified, dramatic reversal that defies the agency’s own past positions and comes amid ongoing legislative efforts to regulate digital assets. It urges the court to find the SEC transgressed its boundaries and dismiss the case. “The SEC has overstepped its statutory authority, and the case should accordingly be dismissed,” Coinbase said. “For the foregoing reasons, Coinbase is entitled to judgment on the pleadings.”

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