SEC Blocks Coinbase Appeal Over Post-Sale Obligations

The U.S. Securities and Exchange Commission (S.E.C.) has firmly opposed cryptocurrency exchange Coinbase’s request for an interlocutory appeal concerning a crucial legal question in their ongoing lawsuit. Coinbase sought to appeal the interpretation of whether an “investment contract” necessitates obligations after the sale of an asset.

In a filing with the United States District Court for the Southern District of New York on May 10, the S.E.C. accused the Exchange of attempting to manipulate the interpretation of this legal question to benefit their appeal efforts. “Coinbase’s attempts to manipulate the question for appeal to shoehorn it into a certifiable question under 28 U.S.C. § 1292(b) are self-defeating,” the S.E.C. declared.

The agency further reiterated that Coinbase expressed dissatisfaction with the Howey Test, the S.E.C.’s long-standing standard for determining what constitutes a security, and criticized the existing framework for securities regulation. The S.E.C. alleges that the Exchange has structured its business operations in ways that might make it costly to adhere to existing laws governing securities.

“Coinbase just does not like the answer. Having made the weather, the Exchange cannot now complain that it is raining,” the S.E.C. asserted in its filing.

Source: Court Listener

Coinbase Clash: Decrypting The Legal Landscape

This latest development comes after Coinbase filed an interlocutory appeal on April 12, arguing that an investment contract cannot exist without a post-sale obligation by the seller or issuer. The S.E.C. disagrees, so Coinbase claims this determines a ‘controlling question,’ which could sway the case.

However, the S.E.C. contended that Coinbase is only claiming this to be a controlling question because the exchange has been unable to provide a clear and coherent explanation of what constitutes a “contractual undertaking” in this context.

The S.E.C. asserted in its filing that “Coinbase remains unable to advance a single, coherent version of this theory, which it now claims presents a controlling question.”

In the eight decades since the enactment of the Securities Act of 1933, no court has ever demanded sellers to provide “contractual undertakings” after they sold a security,” the agency further noted. “Interlocutory review is not warranted because Coinbase proposes a new legal test and disagrees with the Court’s rejection of that test,” the S.E.C. stated.

The S.E.C.’s lawsuit against Coinbase, filed in June 2023, alleges that the cryptocurrency exchange violated federal securities laws by listing 13 digital tokens that the agency considers securities. Coinbase has maintained that the transactions facilitated on its platform do not constitute securities and, therefore, fall outside the S.E.C.’s regulatory purview.

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