SEC: Coinbase earlier than Lawsuit ‘Understood’ Securities Legislation Might Apply to Its Enterprise

SEC Answers to Coinbase’s Denunciation of Complaints
In response to Coinbase’s denial of its accusations, the US Securities and Exchange Commission (SEC) sent a statement yesterday, Friday, stating that the cryptocurrency exchange “understood that the securities laws could apply to its conduct.” Additionally, the securities watchdog stated that Coinbase “knew which rules to consider in evaluating the legality of its conduct” but chose to accept the risk “in the name of growing its business.”
Coinbase, the largest cryptocurrency exchange in the US, was accused by the SEC of running an unlicensed trading platform in early June and selling 12 unregistered securities tokens on it. The SEC filed a lawsuit against Coinbase. It further claimed that Coinbase operates an unlicensed cryptocurrency staking operation.
SEC’s claims “lack all merit,” Coinbase responded in response to the agency’s complaint last month, claiming the regulator lacked the authority to regulate the company. Citing the Howey Test, the exchange argued that digital assets displayed on Coinbase are “simply an asset sale” rather than “securities.” A legal notion known as the test is applied to ascertain whether a transaction qualifies as an investment contract, which is a particular kind of security.
Still, the SEC argued that Coinbase was using the test’s “legal framework” “as a foundation for making listing decisions that it now claims has no applicability to its activities,” in opposition to Coinbase. In addition, the regulator said that Coinbase ‘explicitly discouraged’ issuers of digital assets to steer clear of ‘problematic assertions’ in their marketing materials that are ‘traditionally linked with securities.”
Coinbase had previously claimed that it was not involved in unregistered securities because the SEC had approved of planned April 2021 Nasdaq public debut. But the watchdog in the answer also refuted this.
“Since becoming a public company, Coinbase has repeatedly informed its shareholders of the risk that the crypto assets traded on its platform could be deemed securities and therefore that its conduct might violate the federal securities laws—including in the very registration statement it now points to as evidence that the SEC supposedly blessed its conduct,” the Securities and Exchange Commission said.
Meanwhile, Coinbase contended in its legal reply to the SEC that, even in the event that the Commission was authorised to supervise its bitcoin exchange operation, the watchdog’s lawsuit still breaches its “due process rights” and hence amounts to “a gross abuse of process.” As per the exchange, the ‘primary questions doctrine’ ought to be implemented in this particular circumstance. This implies that the US Congress must provide fresh legislative support for the SEC in order to regulate digital assets as securities.
In response, the SEC pointed out flaws in the logic, claiming that the cryptocurrency exchange’misapprehends the intent and scope’ of the theory. The regulator thinks that “separation of powers concerns” are the foundation of the theory.
“This case, by contrast, involves the SEC’s exercise of its longstanding authority to enforce statutory requirements,” the agency stated. “In 1934, Congress granted the SEC the authority to enforce the federal securities laws through civil law enforcement actions.”
The SEC further stated that it will submit a countermotion if the court granted Coinbase’s request to seek an order striking out its claims. The US District Court in New York has scheduled July 13, 2023, as the day to hear the dispute between both parties, according to a report published by Finance Magnates.

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