Judge Failla Challenges SEC's Case Against Coinbase

In a recent court hearing, U.S. District Judge Katherine Polk Failla questioned the Securities and Exchange Commission (SEC) about its lawsuit against Coinbase, one of the largest crypto exchanges in the world. The SEC accuses Coinbase of operating as an unregistered exchange, broker and clearing agency, and claims that many of the tokens listed on its platform are securities. Coinbase denies these allegations and seeks to dismiss the case.

Judge Failla asked the SEC to provide more clarity on how it defines securities and staking, two key concepts in the crypto industry. Also, she also referred to the rulings of Judge Jed Rakoff and Judge Analisa Torres on similar cases involving LBRY and XRP, respectively.

One thing is clear. It is now common ground the tokens themselves are not securities. After the SEC v Ripple summary judgment it was said that Judge Torres finding that #XRP itself is not a security is only obiter. But it seems it has already had a far reaching effect including… https://t.co/dMWeAvXlYF
— bill morgan (@Belisarius2020) January 18, 2024

However, Judge Torres welcomed the ruling that declared XRP as a non-security, a decision that pleased XRP advocate Bill Morgan. Also, Morgan is optimistic about the prospect of cryptocurrencies being acknowledged as non-securities in the U.S., as indicated by Judge Failla’s questioning of the SEC.

Adjourned.

The @SECGov's summation of its argument (broadly) is that @coinbase is making up a new version of the Howey Test and that there can be no deviating from Howey as it was originally written.

The SEC lawyer said "The Congress of 1934 would be surprised that today…
— Eleanor Terrett (@EleanorTerrett) January 17, 2024

The SEC, however, argued that Coinbase is trying to circumvent the existing regulatory framework by creating a “new version of the Howey Test”, a legal standard for determining whether an asset is a security or not. The SEC lawyer said, “The Congress of 1934 would be surprised that today there would be such an easy workaround to the carefully constructed regulatory structure they created in 1934 with regards to the market.”

Coinbase Defends Crypto Against SEC Charges

Coinbase rejected the SEC’s accusation, saying that it has not reinterpreted the Howey Test, but rather that the SEC is “stretching the Howey Test to fit the circumstances”. The Coinbase lawyer stated,

The Commission’s complaint draws the court into completely unprecedented territory. The SEC should follow enforcement and rulemaking actions that make sense of statutory language and doesn’t twist it upside down. This is several bridges too far and for that reason we ask you to dismiss completely.

Furthermore, Judge Failla did not make a decision on whether to dismiss the case or not but said she would consider the arguments of both parties. Also, the outcome of this case could have significant implications for the future of the crypto industry in the U.S. and beyond.

Furthermore, the author’s views are for reference only and shall not constitute investment advice. Before purchasing, please ensure you fully understand and assess the products and associated risks.