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Coinbase Tables Final Submission in Motion to Dismiss SEC Lawsuit

The United States’ largest crypto exchange, Coinbase, confirmed submitting its argument in the motion pleading the dismissal of a lawsuit initiated by the Securities and Exchange Commission (SEC). The filing submitted before the court on Tuesday, October 24, reiterates the argument that tokens offered via retail sale are non-securities. 

Coinbase indicated that the Garry Gensler-led Commission overstepped the regulatory bounds when filing the charges in June this year. 

The Brian Armstrong-led crypto exchange underscored its stance in the legal brief to support its motion before Judge Katherine Failla of New York’s Southern District court. It denounces the assertions advanced by the securities watchdog in the forty-page rebuttal filed in early October. 

The SEC charged Coinbase in June, assuming the firm of nonregistration as a digital assets exchange, brokerage, and clearing house despite providing such services to US customers. The Commission also stated that Coinbase offers problematic staking products. 

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Coinbase Motion Presents Taller Hill to Overcome

The SEC lawsuit triggered a prompt response from Coinbase seeking to toss out the case later that month. Coinbase advanced a two-fold argument that tokens offered on its platform lack securities qualification as required in the investment contracts principle. Secondly, the crypto exchange indicated that the SEC contravened the Major Questions Doctrine, which imposes limits on the regulator’s authority. 

Procrypto pundits predict the decision is looming, though they admitted that the motion fronted by Coinbase is a taller hill to overcome. They indicate that the motions seeking judgment on pleadings often face several challenges.  

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The filing seeks Judge Failla to dismiss the case filed by the SEC before its start. The motion sought by the crypto exchange requests the court to examine whether to reach a ruling on matters of the law. The motion leverages the assumption that the complaints cited by the SEC are true and factual.

Several community members indicated that failure to convince Judge Failla would prompt Coinbase to pursue a trial over the matter. Still, the discovery phase for the trial could take 12 months, pushing the potential ruling date to the onset of 2025. 

The community emphasizes that Judge Failla has crypto experience. They cite that 2023 saw the judge reach favorable rulings for decentralized finance (DeFi) giant Uniswap and Ripple

Judge had in September this year examined how the DeFi exchanges utilize the liquidity pools mechanism. She would separately discover in July that Ripple’s native token, XRP, is not entirely a security on the face. 

The determination of whether tokens trading on Coinbase are securities involves a critical element of the claims advanced by the SEC. However, convincing the court that Coinbase violated the securities law by overlooking registration with the regulator mandates the Commission to demonstrate that specific cryptos are indeed securities. 

Revisits Howey Test and Major Questions Doctrine Theory

The SEC leverages the Howey Test doctrine to allege that some digital tokens harbor securities qualifications. The regulator submits that there exists money investment in an enterprise informed by reasonable anticipation of realizing profits from the input of others.  

The approach adopted by the SEC emerges from the 1946 Supreme Court ruling. Nonetheless, the counsel assembled by Coinbase considers that the SEC move shows a mischaracterization of decades-old precedent. Besides, the absence of contractual commitment binding token sellers and buyers extinguishes the SEC’s narrative. 

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The Supreme Court pronouncement emphasizes that contractual commitment from the seller to the buyer offers ground for the legal claim on the investment contract principle. SEC fails to identify the contractual commitment. 

The Coinbase references the Major Questions Doctrine that, in theory, surfaced this year when the Supreme Court dismissed President Joe Biden’s plans to offer student loan forgiveness as unconstitutional.

Coinbase submitted that under the Major Questions Doctrine theory, the court should hold that Congress hardly delegates major questions involving political and economic importance to the executive agencies. Consequently, the SEC lacks authority since Coinbase alleges that digital assets constitute a major question.  

Editorial credit: Pro Aerial Master / Shutterstock.com


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Stephen Causby

Stephen Causby is an experienced crypto journalist who writes for Tokenhell. He is passionate for coverage in crypto news, blockchain, DeFi, and NFT.

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