- Coinbase has renewed its efforts to appeal a judge’s ruling in its ongoing case with the U.S. Securities and Exchange Commission (SEC), citing recent legislative developments in Congress.
- The legislative development referred to is the passage of the Financial Innovation and Technology for the 21st Century Act (FIT21) by the House of Representatives.
- “Legislators’ disagreement with the SEC’s position meanwhile has deepened: just this week, the U.S. House of Representatives approved on a bipartisan basis comprehensive digital asset legislation that would deny the SEC the expansive jurisdiction it claims,” Coinbase stated in its brief.
Coinbase seeks to dismiss SEC lawsuit citing new crypto laws and recent legislative developments in Congress.
Financial Innovation and Technology for the 21st Century Act (FIT21)
The FIT21 bill, which passed with a 279-136 vote, received support from 71 Democrats, including former Speaker of the House Nancy Pelosi. This legislation aims to grant more authority and funding to the Commodity Futures Trading Commission (CFTC) to oversee crypto spot markets and “digital commodities,” particularly Bitcoin. Despite the bill’s unlikely path to becoming law this year, it has been viewed by some in the crypto community as a favorable shift in the political landscape.
Judge Katherine Polk Failla’s Ruling
Coinbase’s appeal stems from a ruling by Judge Katherine Polk Failla, who rejected Coinbase’s argument that investment contracts require a formal contract. Judge Failla asserted that purchasing a token on Coinbase involves buying into the token’s “digital ecosystem,” not merely acquiring the token itself. The core issue Coinbase seeks to appeal is whether the SEC can regulate digital asset transactions as “investment contracts” without any contractual elements involved. “Whether the SEC may regulate as ‘investment contracts’ digital asset transactions that don’t involve anything contractual,” Coinbase Chief Legal Officer Paul Grewal explained in a post on X.
SEC’s Opposition and Next Steps
The SEC has opposed Coinbase’s appeal motion, arguing that it should be denied. The next step involves Judge Failla deciding whether to allow the appeal request to proceed to the U.S. Court of Appeals for the Second Circuit. If granted, the Second Circuit must also agree to hear the appeal. Meanwhile, Coinbase and its CEO, Brian Armstrong, are facing a new class-action lawsuit filed in the United States District Court for the Northern District of California, San Francisco Division. The lawsuit alleges that Coinbase’s business model is illegal, and that the company knowingly deceived investors into buying securities, which, according to the complaint, violates state securities laws.
Class-Action Lawsuit Against Coinbase
The plaintiffs claim that Coinbase’s digital asset sales have violated securities regulations since the company’s inception. Specifically, the suit identifies tokens like Solana (SOL), Polygon (MATIC), Near Protocol (NEAR), Decentraland (MANA), Algorand (ALGO), Uniswap (UNI), Tezos (XTZ), and Stellar Lumens (XLM) as unregistered securities. The lawsuit comes amidst Coinbase’s ongoing legal battle with the U.S. Securities and Exchange Commission (SEC), which also questions whether tokens sold on the exchange should be considered securities. It alleges that the largest U.S. cryptocurrency exchange has violated securities laws by facilitating the trading of at least 13 crypto tokens that should have been registered as securities.
Conclusion
Coinbase’s renewed efforts to appeal the SEC lawsuit highlight the ongoing tension between the crypto industry and regulatory bodies. The passage of the FIT21 bill by the House of Representatives signifies a potential shift in the regulatory landscape, favoring more oversight by the CFTC. As Coinbase navigates its legal challenges, the outcome of these cases will undoubtedly shape the future of cryptocurrency regulation in the United States. Stakeholders in the crypto community should closely monitor these developments, as they will have significant implications for the industry’s regulatory framework and market dynamics.
