America’s largest cryptocurrency exchange Coinbase has submitted a motion to dismiss a lawsuit filed by the Securities and Exchange Commission (SEC).
The motion, filed with the U.S. District Court for the Southern District of New York, argues that crypto assets are neither investment contracts nor securities and so fall outside the SEC’s delegated authority as set by Congress.
Coinbase Seeks to Dismiss SEC Lawsuit
Recall that the SEC sued Coinbase on June 6, a day after unveiling a slew of charges against Binance, the world’s largest crypto exchange. The agency accused Coinbase of failing to register as a national securities exchange, clearing agency, and broker, despite functioning as all three.
The U.S. regulator also alleged that Coinbase violated securities laws by availing unregistered assets that passed the Howey test on its platform for trade while claiming to be legally compliant. The agency named 12 crypto assets, including ADA, Matic, and SOL, as securities in the lawsuit.
In addition, the SEC accused the crypto exchange of failing to register its staking-as-a-service product, which is also a security, thereby denying investors crucial information about the program.
In defense, Coinbase argued that the SEC violated due process, abused its discretion, and abandoned its own earlier interpretations of the securities laws in the lawsuit by ignoring the true definition and application of the Howey Test.
Coinbase Says it Does Not Offer Investment Contracts
Coinbase insisted that the SEC can pursue enforcement action only if transactions on its platform constitute investment contracts and, therefore, securities. Citing the SEC’s case against Ripple Labs, and several others, the exchange asserted that none of them are securities in accordance with relevant laws; hence the agency’s claims must be dismissed.
“The SEC does not and cannot allege that transactions in the 12 tokens identified in the Complaint that take place on Coinbase’s secondary market spot exchange, or on other secondary market exchanges through Coinbase Prime, carry such rights. They are asset sales, with the obligations of buyer and seller discharged at the point of sale,” the crypto exchange said.
Coinbase further insisted that it does not operate as a broker just because it offers free wallet software that allows users to store and access their digital assets on their devices.