Crypto exchange Coinbase has filed a motion to dismiss the U.S. Securities and Exchange Commission’s (SEC) lawsuit against it, describing it as an “extraordinary abuse of process,” according to a June 28 filing.
SEC’s “about-face”
Coinbase argued in its filing that the SEC’s lawsuit stems from a shift in the regulator’s approach to the cryptocurrency industry.
According to the exchange, the financial regulator had approved its move to go public in April 2021 without suggesting that it must register its operations, nor did it classify any of its listed assets as securities at that time.
Coinbase noted the SEC Chairman Gary Gensler’s testimony before Congress in May 2021, where he allegedly acknowledged that the Commission lacked the statutory authority to regulate businesses such as Coinbase.
The exchange emphasized that according to their interpretation, Gensler specifically stated that only Congress had the power to address the regulatory gaps in the operation of cryptocurrency exchanges.
Coinbase claimed in its filing that the SEC altered its stance within two years “by decree, arbitrarily, and without congressional mandate,” confusing market participants with its unexpected about-face.
Deny securities allegations
In the filing, Coinbase unequivocally stated that it does not list securities and nor does its staking service constitute a securities product.
Coinbase disclosed that out of the 12 crypto assets categorized as securities by the SEC, it had listed six before its 2021 public listing – and that the financial regulator failed to classify these assets as securities at the time. Coinbase is of the view that:
“None of the assets the SEC has now identified are in fact securities, and for that and other reasons, secondary transactions in those assets are also not securities.”
Furthermore, the exchange stated that the fees it earns for its staking services are for administration and IT services, not managerial expertise or effort, as there is no “investment contract.” It added that the firm does not determine staking rewards.
“Coinbase denies that its staking services constitute a security, that its staking services violate the U.S. securities laws in any way, or that it has deprived customers of any material information concerning those services.”
Coinbase wants the case dismissed
In its filing, Coinbase asks the court to dismiss the SEC’s charges with prejudice and grant judgment in its favor on all claims.
“SEC’s claims lack all merit. Its still-evolving legal position rests on a novel, atextual, and acontextual construction of the word “investment contract” in the federal securities statutes that runs directly contrary to SEC officials’ public admissions about the limits of their agency’s statutory authority.”
The term “with prejudice” refers to a case being dismissed permanently.
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