Coinbase Alleges that SEC Is Overreaching in Crypto Exchange’s Latest Efforts to Dismiss Lawsuit

Crypto exchange Coinbase (NASDAQ:COIN) is alleging that the US Securities and Exchange Commission (SEC) has overstepped in the firm’s most recent effort to dismiss the ongoing lawsuit.

Coinbase’s response to the SEC‘s lawsuit filed earlier this year is that not everything qualifies as a security.

Coinbase, which is the largest US-based crypto exchange in terms of scope of operations and trading volumes, is dealing with the securities regulator regarding its application of the Howey Test, which is used to assess if a financial instrument should be deemed a security.

This past Tuesday, Coinbase had filed its latest argument in an attempt to dismiss the ongoing enforcement action against the digital asset firm.

As noted in the court documents:

“The SEC’s authority is limited to securities transactions. Not every parting of capital with a hope of gain qualifies, and trades over Coinbase are only securities transactions if they involve ‘investment contracts,'”

It’s worth noting that Coinbase may be implying that the primary questions doctrine, the main idea of which states that courts must not uphold irrelevant actions/arguments by regulatory agencies that do not come with clear congressional authority.

Interestingly, this is essentially the same type of argument that the Supreme Court justices made in order to reject the Biden administration’s student debt relief package.

As noted by Coinbase:

“A token sale on Coinbase is no different from a trade of a baseball card or Pokemon card or a Beanie Baby or a painting or bitcoin or ether.”

According ot the SEC’s interpretation, “each sale and resale of the paintings on Etsy would be a securities transaction.” However, they are not.

Coinbase added that the SEC has not been able to convincingly prove that the digital tokens provide the holder a financial stake in a company or business entity. Coinbase clarified that an investment contract does not necessarily have to be in the form of company stock. However, it must do more than simply exist as an entity to own, the company argued.

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