Coinbase Seeks Dismissal of SEC Lawsuit, Arguing Tokens are Not Investment Contracts
Cryptocurrency exchange Coinbase has asked a New York federal court to dismiss a lawsuit by the Securities and Exchange Commission (SEC) that accuses the company of offering unregistered securities. Coinbase argues that the digital assets it lists for trading, such as Solana and Cardano, are not “investment contracts” and therefore do not fall under the jurisdiction of the SEC. The company claims that buyers and sellers are simply exchanging assets without any contractual obligation. Coinbase’s top lawyer, Paul Grewal, compared the situation to a famous Supreme Court case known as Howey, where the court determined that orange sales tied to real estate transactions were investment contracts. Grewal stated that any investment contract involving Coinbase’s tokens would have occurred between the creator of the tokens and the initial buyers, not Coinbase itself.
Coinbase also invokes the theory that tokens can cease to be securities as their host blockchains become decentralized. However, this argument has not been thoroughly tested in U.S. courts due to the relatively new and evolving nature of cryptocurrency laws. In addition, Coinbase is relying on a fair notice defense, claiming that the SEC did not adequately inform them of the relevant laws before initiating the lawsuit. The outcome of the case poses a significant threat to Coinbase and other U.S. crypto companies, and a ruling on the dismissal motion is not expected until late 2023. It is more likely that the case will be decided at the summary judgment stage in 2024, where both parties will present arguments based on a full body of evidence.
About The Author
