SEC Denies Coinbase Appeal on Crypto Rules

SEC denies Coinbase appeal on crypto rules over unregistered securities, Exchange claims innocence.

Coinbase’s application for an interlocutory appeal regarding a “controlling question” in the ongoing litigation has been denied by the US Securities and Exchange Commission (SEC). The SEC has accused Coinbase of attempting to manipulate the interpretation of the question itself.

In a filing with the United States District Court for the Southern District of New York on May 10, the SEC stated that Coinbase’s efforts to manipulate the question for appeal to shoehorn it into a certifiable question under 28 USC $ 1292(b) are futile.

Additionally, the SEC reaffirmed that Coinbase “does not like” the current framework for securities regulation and the Howey Test, the agency’s standard for determining what constitutes a security. The company has chosen to structure its operations in ways that could be costly to comply with existing laws.

“Coinbase just does not like the answer. Having made the weather, Coinbase cannot now complain that it is raining.”

It follows Coinbase’s April 12 interlocutory appeal, in which it was argued that the existence of an investment contract is contingent upon a post-sale obligation. 

Coinbase asserts that this is a controlling question—a critical legal issue that can significantly impact the case’s outcome—since the SEC is opposed to this.

Nevertheless, the SEC contended that Coinbase’s assertion of this being a controlling question is unfounded, given the exchange’s inability to elucidate the term “contractual undertaking precisely.”

“Coinbase remains unable to advance a single, coherent version of this theory, which it now claims presents a controlling question,” the Securities and Exchange Commission reported.

However, the SEC contended that no court has ever requested “contractual undertakings” after a sale in the past eight decades.

The SEC noted, “Interlocutory review is not warranted on the basis that Coinbase proposes a new legal standard and disagrees with the Court’s rejection of that standard.”

“However, Coinbase’s desire to rewrite decades-old, settled legal precedent to suit its own policy objectives and business requirements does not provide a compelling reason to certify an appeal in this case prematurely,” the statement continued.

Coinbase was sued by the SEC in June 2023 because it had contravened federal securities laws by listing thirteen tokens that the SEC claimed were securities.

Coinbase maintained that the transactions on its platform do not qualify as securities, asserting that it operates beyond the purview of SEC regulations. Conversely, the SEC maintains a contrasting standpoint.

The SEC stated in court documents dated March 27 that “at least some of the transactions on Coinbase’s platform and through related services constitute ‘investment contracts,’ which have long been recognized as securities under federal securities laws.”