According to a report by CoinDesk, the US Securities and Exchange Commission (SEC) and cryptocurrency exchange Coinbase argued in court on Wednesday (17th) about whether the trading of several tokens constitutes securities and other related issues. However, the federal judge ultimately did not decide whether to dismiss the SEC’s lawsuit against Coinbase.
Both the SEC and Coinbase agreed in court that the tokens themselves are not securities. The SEC’s lawyer argued that each transaction is equivalent to an investor investing in a token ecosystem with the hope of gaining profits, and as long as any of these transactions can be considered an investment contract, Coinbase would violate securities laws. However, the exchange countered that these transactions occur in the secondary market and do not involve any contracts, therefore should not be subject to securities laws.
Coinbase is trying to convince Judge Katherine Polk Failla of the Southern District of New York to dismiss the SEC’s allegations of wrongdoing. However, the judge did not immediately make a ruling or indicate a timetable for the final decision, with expectations that it will be made in the coming weeks. The final decision could affect the outcome of similar cases against exchanges like Binance and Kraken by the SEC.
The arguments from both sides:
SEC lawyer Patrick Costello argued that regardless of how buyers acquire digital assets, they are essentially obtaining a contract, stating that “tokens are the key to entering the ecosystem. Without the ecosystem, the tokens are worthless.”
Lawyer William Savitt from Wachtell, Lipton, Rosen & Katz, representing Coinbase, argued that the definition of “investment contract” actually requires a contractual obligation between the token issuer and the buyer. He stated, “There must be a statement expressing an enforceable commitment. Without such a statement, there is no contract.” He referred to this as a “purely legal question.”
The SEC’s lawyer also attempted to refute the warning that the SEC’s position could expand the definition of securities to collectibles such as artwork or trading cards, stating that these assets lack a core ecosystem. Costello stated that collectibles have their own value and “no one can make a baseball card more valuable.”
Judge Failla also mentioned key rulings in other cryptocurrency litigation cases, including the SEC’s loss against Ripple and its victory in the Terraform Labs case. She stated that Judge Jed Rakoff’s determination that cryptocurrency asset transactions are securities in the Terraform case “doesn’t surprise me,” but it did not involve tokens being listed on secondary exchanges. She said, “Terraform is very different from the facts of this case.”
Judge Failla also acknowledged some apparent hesitation in applying the so-called “Major questions doctrine,” a “checkbox” principle. Coinbase argues that based on this principle, SEC actions should be suspended until Congress has the opportunity to enact cryptocurrency-related laws.
Related report: “US Senators Criticize SEC’s Abuse of Power! Urges Court to Dismiss SEC’s Charges Against Coinbase.”
