What to Expect from the First Coinbase-SEC Hearing on Crypto.com

Crypto Exchange Coinbase and SEC Litigation

A pre-motion hearing is set to take place on July 13 between the Securities and Exchange Commission (SEC) and crypto exchange Coinbase, which could provide insight into the potential impacts of the litigation on the wider crypto industry, according to legal sources speaking with Cointelegraph.

Originally scheduled for August, the conference is a typical request made by any party seeking a ruling on a specific matter before the trial. In this case, Coinbase requested the motion from Judge Katherine Polk Failato to dismiss the complaint filed by the SEC on June 5.

The hearing is likely to be “procedurally and administratively heavy”, said Mark Kornfield, securities and regulatory attorney. “Coinbase will try to position this case as one that is ripe for early dismissal on any number of grounds, including that the tokens are not securities under the Howey test and thus the commission is exceeding its jurisdictional authority,” Kornfield added.

In its response to the motion on July 7, the SEC expressed strong criticism of the exchange, asserting that Coinbase was aware of potential violations of securities laws and was attempting to “construct its own test for what constitutes an investment contract” by “ignoring more than 75 years of controlling law under Howey”.

Crypto.com and the SEC

Coinbase’s motion also refers to its upcoming initial public offering in 2021. The SEC is now seeking charges for activities that have been “exhaustively described” to the regulator and the public in the past years.

According to corporate and securities lawyer Roland Chase, the federal securities laws governing the “going public” process are disclosure-based. “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,” Chase told Cointelegraph.

Coinbase reported to the SEC that it would subject each asset to a comprehensive legal analysis before allowing it to trade on its platform to ensure securities are not traded. After this disclosure, the SEC cleared Coinbase to go public. However, the SEC now believes that Coinbase is trading securities on its platform, as well as offering its own unregistered securities.

Ripple’s legal battle is a well-known example of the lengthy process that can occur without an agreement between the parties. The SEC deemed that its token XRP was a security in 2020, and Ripple CEO Brad Garlinghouse has since argued that the SEC has “knowingly created confusion about the rules, and they used that confusion through enforcement.”