Coinbase Allegedly Violating Securities Laws, SEC Claims

Crypto-Related Assets on Coinbase

On July 7, the SEC sent a letter to a district judge, noting that Coinbase was aware of the potential for assets traded on its platform to be classified as securities under federal securities laws.

“Since becoming a public company, Coinbase has made it clear to its shareholders that crypto assets traded on its platform may be deemed securities and that its conduct could thus violate the federal securities laws,” the SEC stated.

The regulator argued that Coinbase, as a “multi-billion-dollar entity advised by sophisticated legal counsel,” is disregarding the Howey test that has been in place for over 75 years in an effort to create its own criteria for what constitutes an investment contract.

The SEC’s letter was in response to Coinbase’s filing on June 28, in which the exchange informed the court of its intention to file a motion for judgment. As per Cornell University, a motion for judgment is used when a party believes that there is no real dispute about the facts of a case.

SEC’s Response to Coinbase’s Claims

Two years after Coinbase went public, the United States Securities and Exchange Commission (SEC) filed charges against the crypto exchange for allegedly offering unregistered securities since 2019. A pre-motion conference on the case is scheduled for July 13 at 2:00 pm UTC.

In its previous letter, Coinbase had pointed out that SEC chair Gary Gensler had allegedly claimed ‘there is not a market regulator around these crypto exchanges’ and ‘only Congress’ could confer authority to regulate crypto exchanges.’

In response to Coinbase’s claims, corporate and securities lawyer Roland Chase explained that the SEC is only authorized to review the going public documents and provide comments and ask questions in an effort to improve the company’s disclosure to potential investors. He further stated that federal securities laws governing the “going public” process are disclosure-based and the SEC cannot deny a company’s public listing merely because it thinks investing in that company is a bad idea.

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