Regulator Claims Coinbase Has Prior Awareness of Potential Law Violations Before SEC Lawsuit

Coinbase’s Prior Awareness of Potential Law Violations Revealed in SEC Filing

In a recent development, the U.S. Securities and Exchange Commission (SEC) has responded to Coinbase’s argument claiming that the agency lacks the jurisdiction to file a lawsuit against them. The SEC filed a new document on Friday, countering Coinbase’s stance.

Just a month ago, the SEC sued Coinbase, alleging that the popular cryptocurrency exchange was operating as an unregistered broker, clearinghouse, and exchange. The SEC further claimed that Coinbase had listed at least 13 different cryptocurrencies as unregistered securities. In their filing, the SEC firmly stated their opposition to any potential motion for judgment that Coinbase might file. They also requested the court to dismiss Coinbase’s arguments that the lawsuit violated the major questions doctrine and other concerns.

According to the SEC’s filing, Coinbase had actually acknowledged the possibility that federal securities laws could be applicable to their listings several years ago. Surprisingly, Coinbase even argued that the SEC’s approval of their registration statement in 2021 confirmed the legality of their underlying business activities, both at that time and indefinitely. However, the SEC countered by stating that Coinbase had previously embraced the legal framework established by the U.S. Supreme Court to assess whether certain cryptocurrencies met the requirements of federal securities laws. Additionally, Coinbase had explicitly discouraged crypto issuers from making statements that are traditionally associated with securities.

The SEC highlighted that Coinbase’s own public filings had also mentioned the potential risk of listed assets being considered securities. This clearly indicated that Coinbase was well aware of the potential applicability of securities laws to their operations. The SEC argued that Coinbase knowingly took on this risk, making a calculated decision in the pursuit of business growth.

Moreover, the SEC provided a glimpse into their counterarguments against Coinbase’s proposed motion for judgment, pointing out two flawed arguments made by the cryptocurrency exchange. Coinbase’s first argument contended that an investment contract must have a formal contract, while the second argued that investment contracts are only relevant if they are traded on secondary markets. However, the SEC emphasized that the Howey Test, which is used to determine investment contracts, does not require a formal contract. Additionally, the SEC noted that transactions on secondary markets can still be in violation of securities laws. As support, the SEC cited their recent legal victory against LBRY.

Regarding Coinbase’s major questions doctrine argument, the SEC firmly disagreed. They stated that this case involved the SEC’s long-standing authority to enforce statutory requirements. The SEC reminded that as early as 1934, Congress empowered them to enforce federal securities laws through civil law enforcement actions.

Currently, a hearing is scheduled for July 13 in the District Court for the Southern District of New York, where further deliberations on the matter will take place.

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Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.