Coinbase Files Legal Challenge Against SEC for Crypto Regulation Clarity

March 12, 2024 Bitcoin.com

Senator Lummis files Amicus Brief supporting Coinbase’s dismissal motion against SEC

August 12, 2023 Coin Telegraph

Senator Lummis argued that the SEC is attempting to “circumvent the political process” by establishing itself as the main authority on crypto.

Crypto-friendly Senator Cynthia Lummis has filed an Amicus Brief supporting Coinbase’s motion to dismiss the U.S. Securities and Exchange Commission's lawsuit against the firm.

An Amicus Brief is a document filed in court by a party that is not directly involved with the related case. They are generally used to add supporting arguments to one side of the lawsuit, and emphasize how the case will have a broader impact beyond the involved parties.

As per the Aug. 11 filing with the U.S. District Court for the Southern District of New York, Lummis stressed that “this is no run-of-the-mill enforcement case.”

The Senator asserted that with its lawsuit against Coinbase over alleged securities violations, the SEC is pushing to obtain “primary influence” over the crypto sector at a time in which regulation and other factors are still “under active consideration by Congress and multiple agencies.”

“The SEC brings this enforcement action in the midst of debates in the halls of Congress and around the world about how crypto assets should be regulated. The Constitution empowers Congress—not the SEC—to legislate in such an area of profound economic and political significance.”

“Although the SEC seeks broad authority over crypto asset markets, most legislative proposals in Congress would instead grant much of that authority to other agencies. Unsatisfied, the SEC seeks to circumvent the political process to commandeer that authority for itself,” she added.

Senator Cynthia Lummis (R. WY) just filed an Amicus Brief supporting @Coinbase's motion to dismiss the SEC's complaint.@SenLummis is Co-Sponsor of the Lummis-Gillibrand crypto regulation bill.

Sen. Lummis' brief argues that:

1. Congress has not granted the SEC authority to…
— MetaLawMan (@MetaLawMan) August 11, 2023

Coinbase filed a motion to dismiss on Aug. 4, arguing that the SEC had “violated due process, abused its discretion, and abandoned its own earlier interpretations of the securities laws,” by asserting authority over the exchange.

In the court filing, Lummis went on to argue that the SEC has been overstepping its authority by claiming that nearly all crypto assets are securities, as she questioned the agency's supposed regulation-by-enforcement approach, or what she described as an attempt to “legislate by enforcement.”

“The SEC’s attempt to shoehorn an entire new class of assets into the existing definition of a ‘security,’ and thereby add to the definition enumerated by Congress, exceeds the SEC’s authority, encroaches on Congress’s lawmaking, and contravenes the separation of powers. The SEC cannot legislate by enforcement.”

Lummis is not alone in filing an Amicus Brief supporting Coinbase’s motion to dismiss.

On Aug. 11, crypto advocacy groups including the Blockchain Association, Crypto Council for Innovation, Chamber of Progress and Consumer Tech Association also submitted a joint filing.

In an X (Twitter) thread announcing the move, the Blockchain Association’s senior counsel Marisa Tashman echoed Lummis’ comments that the “SEC's regulatory authority extends only to what Congress granted it,” as she highlighted the risks of the SEC’s approach to the sector:

“The SEC's interpretation threatens to sweep in many non-security assets - this can't be what Congress intended when it granted the SEC authority to regulate securities.”

“The SEC takes the position that nearly all digital assets sold on the secondary market are investment contracts under the federal securities laws. But, these transactions involve no ongoing contractual obligations. The SEC's position is wrong,” she added.

1/ @BlockchainAssn and @crypto_council filed a brief with @ProgressChamber and @CTATech supporting @coinbase against the SEC.

We explain why the major questions doctrine precludes @SECGov from enforcing their interpretation of "investment contract." https://t.co/3JohzZK2lW pic.twitter.com/SrghLHpfmA
— Marisa Tashman Coppel (@MTCoppel) August 11, 2023

Magazine: Crypto regulation — Does SEC Chair Gary Gensler have the final say?

Allowing Coinbase to go public was not a ‘blessing’ of the business: SEC

July 15, 2023 Coin Telegraph

Coin Telegraph

The SEC argued that just because it approves an S-1 filing from a company, does not mean the firm is not operating, or will not operate in “violation of the law.”

The U.S. Securities and Exchange Commission (SEC) has argued in court that approving a firm's S-1 application to go public, does not represent a “blessing” from the agency, nor provide a verification that the business is regulatory compliant.

In the interest of transparency, here is the transcript from our hearing yesterday in the SDNY case brought against us by the SEC. We appreciate the Court’s careful consideration. https://t.co/NEEsr05fos
— paulgrewal.eth (@iampaulgrewal) July 14, 2023

As per July 13 court documents from the pre-motion hearing of the SEC vs Coinbase case, the SEC asserted that it was not signing off on Coinbase’s business structure when giving it the greenlight to go public back in April 2021.

“Your Honor, I'll say that simply because the SEC allows a company to go public does not mean that the SEC is blessing the underlying business or the underlying business structure or saying that the underlying business structure is not in violation of the law,” SEC trial counsel Peter Mancuso said, adding that:

“There is no way that an approval of an S-1 is a blessing of a company's entire business. In fact, there is no evidence being put forth that the SEC looked at specific assets and made specific determinations and then gave Coinbase comfort that this would not later be found to be a security.”

On crypto Twitter, several people including Gemini co-founder Cameron Winklevoss highlighted the implications of such statements, as they questioned why the SEC would allow a supposedly non-compliant business to go public in the first place, given that its goal is to protect U.S. consumers.

so they allow ipo for illegal business and let americans invest in it? lmao sec is cooked
— Metatron (@metatron_0x) July 14, 2023

U.S.-based firms are required to submit an S-1 filing with the SEC before they can start listing their shares on a national stock exchange. As part of the filing, companies need to provide a comprehensive rundown of their business structure and how proceeds from an Initial Public Offering will be used.

Following Mancuso’s comments, U.S. District Judge Katherine Polk Failia said: “Let's just pause so I can just sort of get rid of the skepticism I currently have as I hear that answer,” as she went on to raise some questions.

“I am not saying that the commission should be omniscient at the time it's evaluating a registration statement and that it should know all things,” she said, adding:

“But I would have thought the commission was doing diligence into what Coinbase was doing, and somehow I thought that it would say, you know, you really shouldn't do this. This is violative of the securities laws, or we are kind of in some interesting unchartered territory here with respect to whether the assets on your platform are securities, so be forewarned that maybe someday there could be a problem.”

In response, Mancuso ultimately reiterated the SEC’s argument that the S-1 filings are more focused on approving company disclosures, rather than the agency itself signing off on a business structure via an approval.

Judge Failia then posited to Mancuso if the SEC could not have said to Coinbase: “‘Hey, you guys need to register as a securities exchange.’”

“That was within the power of the SEC to do, was it not?” she questioned.

“I can't really speak to that,” Mancuso replied.

The SEC initially charged Coinbase for alleged unregistered securities offerings dating back to 2019.

Coinbase is pushing for an early dismissal of the case on several grounds, with one of its arguments being that the SEC is charging the firm despite its business structure and planned activities being “exhaustively described” to the agency before the Coinbase IPO.

The SEC is getting torn to pieces in court and it's not going to stop any time soon. https://t.co/jr1jinoc5D
— Jake Chervinsky (@jchervinsky) July 15, 2023

Magazine: Crypto regulation — Does SEC Chair Gary Gensler have the final say?

‘Near impossible to know’ what is and isn’t a security: Mark Cuban on SEC

June 12, 2023 Coin Telegraph

binance lawsuit

The billionaire is the latest to argue that the United States Securities and Exchange Commission hasn’t provided crypto firms with a registration process to follow.

Billionaire investor Mark Cuban has become one of the latest industry figures to call out the United States securities regulator for purportedly failing to provide cryptocurrency firms with a clear registration process.

The Shark Tank investor claimed in a June 11 tweet that no registration exists in the SEC’s “Framework for ‘Investment Contract’ Analysis of Digital Assets” document, making it “near impossible to know” what constitutes a security in the “crypto universe.”

“Unfortunately none of the elements presented in this page are part of the registration process. Which makes it near impossible to know, with or without an army of securities lawyers, what is or is not a security in the crypto universe.”

This is an SEC WEB PAGE about the howey test and tokens that often conflicts with what @SEC_Enforcement has said publicly. It's worth a read to get more clarity on what may or may not be a security https://t.co/m5E9V0Pd18

Unfortunately none of the elements presented in this… https://t.co/iZ9Gn5SADK pic.twitter.com/kGHgsZkOaH
— Mark Cuban (@mcuban) June 11, 2023

While a step-by-step outline isn’t provided, the document does briefly explain what is required for firms pursuant to U.S. federal securities laws.

Among the requirements included the need to disclose all information necessary for investors to make “informed investment decisions” and other “essential managerial efforts” that impact the success of the enterprise.

Meanwhile, Cuban noted that other sectors in the finance industry are receiving much more transparency from the SEC. Rather than labeling “stock loans” as securities or suing brokers and banks, they’re engaging in a “comments process,” Cuban explained.

“They should do the same thing with crypto as an effort to determine which aspects of crypto are securities and which are not,” he added.

Here is the SEC calling the stock loan industry "opague" and requiring transparency. Note, they are not calling "stock loans" a security as they are trying to do with the loaning of crypto assets. Nor are they suing the Stock Loan Departments of brokers/banks. They are going… https://t.co/0gSjAuAkWS pic.twitter.com/GfWm3m1jOB
— Mark Cuban (@mcuban) June 9, 2023

U.S. Senator Cynthia Lummis has also lashed out at the regulator for failing to provide a “robust legal framework” or at least offer “legal guidance” in some form for firms to comply with:

My statement on the SEC suing Coinbase, inc. https://t.co/5KNEM0IPSV pic.twitter.com/EgRIxrIcjj
— Senator Cynthia Lummis (@SenLummis) June 6, 2023

Last week, SEC Chair Gary Gensler claimed at the Global Exchange & Fintech Conference on June 8 that a registration process exists and that firms “know how to register.”

His comments were made in relation to Coinbase and Robinhood’s recent claims that they tried to register but the SEC rejected the attempt.

The SEC sued Binance on June 5 and Coinbase on June 6, alleging the exchanges broke various securities rules, most notably for purportedly offering cryptocurrencies that the regulator considers to be unregistered securities.

A total of 68 cryptocurrencies are now considered to be securities by the SEC.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?