According to CoinDesk, the US Securities and Exchange Commission (SEC) and cryptocurrency exchange Coinbase argued in court on Wednesday (17th) about whether the trading of dozens of tokens constitutes securities-related issues. However, the federal judge did not ultimately decide whether to dismiss the SEC’s lawsuit against Coinbase.
Both the SEC and Coinbase agreed in court that the tokens themselves are not securities. The SEC’s lawyers argued that each transaction is equivalent to a buyer investing in a token ecosystem with the hope of benefiting from it, and as long as any of these transactions can be considered an investment contract, Coinbase would violate securities laws. However, the exchange countered that these transactions occur on a secondary market and do not involve any contracts, therefore should not be subject to securities regulations.
Coinbase is trying to convince Judge Katherine Polk Failla of the Southern District of New York to dismiss the SEC’s allegations of wrongdoing. However, the judge did not immediately make a ruling or indicate a timeline for the final decision, with expectations that it will be made in the coming weeks. The final ruling may affect the outcome of similar cases against exchanges such as Binance and Kraken, which the SEC has filed.
Arguments from both sides:
SEC lawyer Patrick Costello believes that regardless of how buyers acquire digital assets, they are actually obtaining a contract. “The token is the key that allows you to enter the ecosystem. Without the ecosystem, the token is worthless.”
William Savitt, a lawyer from Wachtell, Lipton, Rosen & Katz representing Coinbase, argued that the definition of an “investment contract” actually requires contractual obligations between the token issuer and the buyer. He stated, “There must be a statement expressing an enforceable commitment. Without such a statement, there is no contract.” He referred to this as a “purely legal issue.”
SEC lawyers also attempted to counter warnings that the SEC’s position could expand the definition of securities to collectibles such as artworks or trading cards, claiming that these assets lack a core ecosystem. Costello stated that collectibles have their own value, “No one can make a baseball card more valuable.”
Judge Failla also mentioned key rulings in other cryptocurrency litigation cases, including the SEC’s loss against Ripple and its victory in the Terraform Labs case. She said it was not surprising that Judge Jed Rakoff in the Terraform case concluded that cryptocurrency asset transactions are securities, but this did not involve the listing of tokens on secondary exchanges. She stated, “Terraform and the facts of this case are completely different.”
Judge Failla also acknowledged some apparent hesitation in invoking the so-called “Major questions doctrine” as a “nuclear option.” Coinbase claims that, based on this doctrine, the SEC’s actions should be suspended until Congress has the opportunity to enact cryptocurrency-related laws.
Related report: “US Senator Criticizes SEC’s Abuse of Power! Urges Court to Dismiss SEC’s Charges Against Coinbase.”
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