Coinbase faces SEC challenge after Terraform ruling

The SEC recently won a legal case against Terraform Labs, a cryptocurrency company. Terraform Labs attempted to dismiss the SEC’s lawsuit by invoking the “major questions doctrine.” This doctrine asserts that significant policy matters should be determined by Congress rather than administrative agencies like the SEC.

However, the Securities and Exchange Commission (SEC) maintained that its regulatory jurisdiction over crypto assets, which it categorizes as “investment contracts” under securities laws, is not bound by this doctrine. The court concurred with the SEC’s stance and rejected Terraform’s motion for dismissal.

This ruling could have implications for Coinbase. The crypto company is currently facing a lawsuit from the SEC. Coinbase filed a motion to dismiss the SEC’s case, using the significant questions doctrine as a defense.

Coinbase asserted that the SEC’s attempt to regulate the secondary market for crypto trading exceeded its jurisdiction and necessitated explicit authorization from Congress. Additionally, Coinbase contended that fair notice regarding the SEC’s regulatory position on crypto assets was not provided.

By ignoring that precedent, the SEC has violated due process, abused its discretion, and abandoned its own earlier interpretations of the securities laws. By ignoring that precedent, the SEC has trampled the strict boundaries on its basic authority set by Congress. 2/3
— paulgrewal.eth (@iampaulgrewal) August 4, 2023

How Will The SEC Respond To Coinbase?

Furthermore, the SEC might leverage the Terraform ruling as a precedent to challenge Coinbase’s motion for dismissal. They may contend that the significant questions doctrine does not impede them from enforcing securities laws on cryptocurrency assets and assert that they have adequately communicated their interpretation of the law in advance.

The Securities and Exchange Commission (SEC) has previously relied on precedent-setting court decisions to bolster its stance in similar cases. Last April, it referenced a ruling affirming its jurisdiction over digital tokens issued by Kik Interactive, a messaging app. This instance highlights its authority in the digital token space.

Additionally, the SEC vs. Coinbase case’s outcome carries significant implications for the crypto industry. As one of the largest and most popular platforms for buying and selling crypto assets, Coinbase’s fate will likely influence how other companies in this sector navigate the SEC’s regulatory landscape.

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