In the upcoming pre-motion hearing on July 13 between the Securities and Exchange Commission (SEC) and Coinbase, legal experts anticipate gaining valuable insights into the litigation’s tone and its potential repercussions for the broader cryptocurrency industry. Initially scheduled for August, this conference is a customary request made by either party seeking a ruling on a specific matter before the trial begins. Coinbase, the crypto exchange, submitted the motion in late June, requesting Judge Katherine Polk Faila to dismiss the complaint filed by the regulator on June 5.
As the first hearing between the parties involved, legal professionals expect the proceedings to be primarily procedural and administrative. Mark Kornfield, a securities and regulatory attorney, suggests that Coinbase will likely attempt to position the case as suitable for early dismissal based on various grounds, including the argument that the tokens in question do not qualify as securities under the Howey test. Coinbase alleges that the SEC is exceeding its jurisdictional authority. Screenshots of Coinbase’s motion filed on June 28 indicate the exchange’s stance.
The SEC, in its reply to the motion on July 7, strongly criticizes Coinbase, claiming that the company was aware of possible securities law violations. The SEC accuses Coinbase of disregarding 75 years of established legal precedent set by the Howey test and attempting to create its own criteria for defining investment contracts. Coinbase also refers to its previous public offering in 2021 and emphasizes that the SEC seeks charges for activities extensively disclosed both to the regulator and the general public over the past years. However, legal experts suggest that such disclosure may not automatically guarantee success in court. Roland Chase, a corporate and securities lawyer, explains that the SEC’s authority during the “going public” process is limited to reviewing documents, providing comments, and seeking clarifications to enhance disclosures for potential investors.
The absence of an agreement between Coinbase and the SEC could result in a prolonged legal battle, similar to Ripple’s ongoing case initiated by the SEC in 2020, which designated XRP as a security. Ripple CEO Brad Garlinghouse recently criticized the SEC, claiming that they intentionally created confusion about regulatory rules to leverage enforcement actions.
It is crucial to monitor this hearing closely as its outcome will have significant implications for cryptocurrency regulation, legal proceedings in the industry, and the overall crypto landscape. The case exemplifies the challenges faced by crypto firms operating under evolving regulatory frameworks and highlights the need for greater clarity and consistency in the application of securities laws.