Leading cryptocurrency exchange Coinbase has filed a motion to dismiss the recent lawsuit brought against it by the U.S. Securities and Exchange Commission (SEC), asserting that the suit represents “an extraordinary abuse of process.”
The SEC’s lawsuit accused Coinbase of enabling unregistered trading in 12 digital tokens classified as securities. However, Coinbase vehemently disputes these claims and argues that the SEC is misapplying securities laws in a manner that strays significantly from established legal frameworks. Paul Grewal, Coinbase’s chief legal officer, stated that the SEC’s allegations “go far beyond existing law” and should, therefore, be dismissed.
In a legal document filed on Thursday with the U.S. District Court for the Southern District of New York, Coinbase raised concerns about the SEC’s interpretation of securities laws, suggesting that the agency was exceeding its legal authority.
Filing a motion to dismiss demonstrates Coinbase’s resolve to challenge the SEC’s lawsuit. Such a motion argues that even if all the allegations in the lawsuit are true, the plaintiff does not have a valid legal claim.
In the filing, Coinbase’s legal team stated,
“Even if the SEC were correct that the assets and services it identifies are within the scope of its existing regulatory authority, this [legal] action must be dismissed on independent grounds that it violates Coinbase’s due process rights and constitutes an extraordinary abuse of process.”
Coinbase firmly maintains that the assets in question are not securities. As a government agency, the SEC requires platforms facilitating the trading of securities to register with it.
The SEC defines securities to include investment contracts, as interpreted by the Supreme Court in the Howey Test, which encompasses transactions where individuals invest money in a common enterprise and expect profits primarily from the efforts of others. The SEC named 12 crypto tokens, including SOL, ADA, MATIC, SAND, FLOW, ICP, NEAR, and DASH, as securities in its lawsuit.
However, in its filing, Coinbase argued that these digital assets do not meet the criteria for securities. The company stated,
“None of the assets the SEC has now identified are, in fact, securities, and for that and other reasons, secondary transactions in those assets are also not securities.”
Moreover, Coinbase pointed out inconsistencies in the SEC’s decisions, highlighting that the agency did not raise objections to six of the disputed tokens during Coinbase’s previous dealings with the SEC in 2021.
Coinbase’s legal team further emphasized that the SEC had approved Coinbase’s registration statement in 2021, allowing the company to go public and sell its shares to investors. This approval followed an extensive review process and extensive discussions with Coinbase. As a result, Coinbase was authorized to trade over 240 tokens on its spot exchange, including six of the 12 tokens now at the center of the dispute.
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