Coinbase (NASDAQ: COIN) made its final court submission in its attempt to have the U.S. Securities and Exchange Commission’s (SEC) case against it dismissed. The filing accused the regulator of jurisdictional overreach in classifying various digital assets listed by the company as securities.
In the October 24 filing with the U.S. District Court for the Southern District of New York, Coinbase blasted the SEC for what the exchange claimed is a too-broad interpretation of a security when it comes to digital assets.
“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.’ The transactions at issue here do not,” said the filing.
The company accused the SEC of “a radical expansion of its own authority” by offering “no limiting principle to distinguish investments within and without its purview.” Coinbase also stated that the regulator was attempting to claim authority over “essentially all investment activity.”
The SEC sued Coinbase on June 6 on charges of violating U.S. securities laws by listing several tokens it considers securities and not registering with the regulator. Coinbase asked for summary judgment in August, arguing that the subject matter of the case falls outside the SEC’s jurisdiction because none of the assets listed on its exchange were securities “as a matter of law.”
The October 24 filing is the latest and final action from the exchange as part of its summary judgment motion. Specifically, it responds to the SEC’s October 3 rebuttal of the dismissal motion, in which the regulator asked the federal court to reject the company’s request and argued that assets listed on Coinbase clearly amount to securities under U.S. law.
Taking to X (formerly Twitter) on Tuesday, Coinbase Chief Legal Officer Paul Grewal summed up the exchange’s position, stating that the SEC “claims roving authority over all investments, with ‘security’ and ‘contract’ in the statutes performing no limiting function at all.”
“As our reply shows, that’s never been the law, and it’s not the law now,” Grewal said.
The @SECGov's opp. to our motion for judgment claims roving authority over all investments, with “security” and “contract” in the statutes performing no limiting function at all. As our reply shows, that's never been the law, and it's not the law now. 1/3 https://t.co/gVFyrJ8oIq
— paulgrewal.eth (@iampaulgrewal) October 24, 2023
Coinbase continues to push the line, buoyed by a controversial and disputed court ruling in the SEC v Ripple case, that the Howey test—which determines whether or not an asset offering is an investment contract and, therefore, a security under U.S. securities law—requires some contractual right to profits awarded to the purchasers of the assets.
In its October 3 filing, the SEC refuted this characterization of the Howey test:
“Howey did not impose any such requirement. And Coinbase cannot cite any case that does. Courts sometimes consider the existence or absence of contractual undertakings as one of many factors in determining whether an investment contract exists. But no court has ever held a formal contract is a prerequisite.”
Ultimately, Judge Katherine Polk Failla will determine who is interpreting the Howey test correctly and may ask Coinbase and the SEC to appear in court for oral arguments before issuing judgment on the dismissal motion. If Judge Failla rejects Coinbase’s summary judgment motion the case will proceed to a jury trial.
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