Coinbase Request Appeal Over SEC’s Digital Asset Classification

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Key Takeaways

  • Grewal argues that Coinbase insists investment contracts entail post-sale obligations, while the SEC disagrees
  • Paul Grewal noted that the “controlling question” revolves around whether an investment contract requires “something contractual.”

Cryptocurrency exchange Coinbase is escalating its legal battle with the U.S. Securities and Exchange Commission (SEC) by filing for an interlocutory appeal in federal court. The appeal aims to challenge a crucial aspect of the case concerning the classification of digital asset transactions.

Coinbase has formally requested permission from Judge Failla to pursue an interlocutory appeal regarding a ruling on investment contracts. This move comes as Coinbase seeks clarity on whether digital asset transactions without obligations to the original issuer should be deemed investment contracts regulated by the SEC.

“The application of Howey to digital asset transactions raises hard questions,” Coinbase argued. “That members of Congress, senators and regulatory agencies have divided in answering them bespeaks the difficulty of the subject matter, and the divergent judicial outcomes illustrate the point.”

Coinbase’s Chief Legal Officer, Paul Grewal, emphasized the importance of the appeal, stating that it addresses a fundamental legal question surrounding investment contracts.

This development follows the denial of Coinbase’s motion to dismiss the SEC’s case by U.S. District Judge Katherine Failla. The SEC alleges that Coinbase operates as an unregistered exchange, broker, and clearing agency, prompting the ongoing legal dispute.

If approved, the interlocutory appeal could significantly impact the case, which has been ongoing since June 2023. Coinbase asserts that a reversal on the legal question raised in the appeal would invalidate the SEC’s principal claims against the company.

“The question presented here is unencumbered by factual disputes and therefore ripe for immediate review,” Coinbase argued in an April 12 filing with the U.S. District Court for the Southern District of New York.

Grewal highlighted the timeliness of Coinbase’s appeal request, submitted just 17 days after the motion to dismiss was denied. Despite the setback, Coinbase remains committed to resolving the dispute over crypto transactions promptly, citing its broader implications for the crypto industry.

Coinbase’s legal woes with the SEC began in June 2023 when the regulator filed a lawsuit alleging that the company violated securities laws by operating as an unregistered broker and exchange.

Last year, SEC Chair Gary Gensler criticized platforms like Coinbase stating that they “call themselves exchanges” but were “commingling a number of functions” and emphasized the need for regulatory clarity in the crypto space.

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Saniya Raahath
Saniya Raahath

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