A pre-motion hearing scheduled for July 13 between the Securities and Exchange Commission (SEC) and cryptocurrency exchange Coinbase should provide some insight into the tone of the litigation and its potential impacts on the broader crypto industry, legal sources told Cointelegraph.
Previously scheduled for August, the conference is a typical request made by any party seeking a ruling on a specific matter before trial. In this case, Coinbase requested the motion at the end of June. The exchange wants Judge Katherine Polk Faila to dismiss the complaint filed by the regulator on June 5.
As the first hearing between the parties, the conference will likely be “very procedural and administrative,” said Mark Kornfield, a securities and regulatory attorney. “Coinbase will attempt to position this case as one that is ripe for early dismissal on a number of grounds, including that the tokens are not securities under the Howey test and therefore the commission is exceeding its jurisdictional authority,” Kornfield added. .
Screenshot of the Coinbase move on June 28. Source: CourtListener.
In its response to the July 7 motion, the SEC harshly criticized the exchange, including that it was aware of possible violations of securities laws, and is deliberating to “ignore more than 75 years of Howey control laws” in an attempt “to construct your own test of what constitutes an investment contract”.
Coinbase’s motion also refers to its 2021 initial public offering. According to the exchange, the SEC is now seeking charges for “thoroughly described” activities to the regulator and the general public in recent years.
Although the SEC was aware of Coinbase’s trading activities, the claim might not be enough to win a case in court. According to corporate and securities attorney Roland Chase, federal securities laws governing the “going public” process are based on disclosure. “All the SEC is authorized by Congress to do is review public documents and provide comments and ask questions in an effort to improve company disclosure to potential investors,” Chase told Cointelegraph.
Chase also noted that in order to go public, Coinbase informed the SEC that it would put each asset through a thorough legal review before allowing it to trade on its platform to ensure that the securities are not traded. “The SEC finally got comfortable with all this disclosure and cleared Coinbase to go public,” he explained, adding that the SEC “now believes that Coinbase is, in fact, trading securities on its platform. offering its own unregistered securities”.
Without an agreement between the parties, the case can take years to resolve. A well-known example is Ripple’s legal battle that has dragged on since 2020 when the SEC also deemed its XRP token to be a security. In a recent video about the ongoing litigation, Ripple CEO Brad Garlinghouse said the SEC “knowingly created confusion about the rules, and they used that confusion to enforce.”
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This post What to expect from the first Coinbase-SEC hearing
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