Coinbase has asked a US appeals court to decide whether or not cryptocurrency trading activity on its platform should be subject to securities laws.
In a filing Tuesday, Coinbase attorneys urged the Second Circuit Court of Appeals to hear its case, arguing that doing so “presents the best opportunity to decide the fundamental legal question of how to treat secondary trading in digital assets “.
“This matter requires the Court’s immediate attention,” Coinbase’s lawyers wrote in their motion. “Whether secondary market trading of digital assets falls under the federal securities laws is a question of immense importance to the crypto industry, consumers, financial institutions, and lower courts who need advice. This case provides an ideal vehicle to answer that question and provide clear rules for this multi-billion dollar industry.
Coinbase has argued that crypto trading on its platform should not actually trigger federal securities laws because secondary crypto transactions do not meet all the criteria of the Howey test, the long-standing legal framework used to decide of what is considered an “investment contract”. Since buyers and sellers on Coinbase’s platform are matched in a blind bidding and asking system and are therefore anonymous to each other, there cannot be any joint enterprise between them. them, the file indicates.
The exchange’s petition comes two weeks after the Southern District of New York (SDNY) issued a rare stay in the U.S. Securities and Exchange Commission’s (SEC) case against Coinbase, giving Coinbase time to appeal to a higher court for clarification.
The SEC sued Coinbase in June 2023 for allegedly acting as an unregistered securities exchange, broker-dealer, and clearing agency. When Coinbase attempted to have the suit dismissed, the district court judge overseeing the case denied its motion, finding that the SEC had made a “plausible” argument that the exchange was violating federal securities laws. On Jan. 7, however, the judge sent the issue back to a higher court, writing that “conflicting rulings on important legal issues require the guidance of the Second Circuit.”
The SEC’s case against Coinbase will be paused while the exchange seeks answers from the Second Circuit.
On the same day that Coinbase’s petition was filed, the SEC – now under the leadership of Acting Republican Chairman Mark Uyeda – announced the formation of a crypto task force led by pro-commissioner Commissioner Hester Peirce. cryptography. The move marks a shift away from the agency’s “regulation by enforcement” approach to crypto under former Chairman Gary Gensler.
“To date, the SEC has primarily relied on enforcement actions to regulate crypto retroactively and reactively, often adopting untested legal interpretations along the way,” the SEC said in a statement. “Clarity around who should register and practical solutions for those seeking to register remain elusive. The result is confusion about what is legal, which creates an environment hostile to innovation and ripe for fraud. The SEC can do better. »
