Coinbase Challenges SEC in Court: A Legal Battle Over Staking


Coinbase, one of the largest cryptocurrency exchanges in the United States, has escalated its legal battle against the US Securities and Exchange Commission (SEC) with a new court filing.

On May 24, Coinbase submitted a memorandum in support of its interlocutory appeal, challenging the SEC’s stance on the application of the Howey test, a critical framework for determining whether certain transactions qualify as investment contracts.

Dispute Around the Coinbase Staking Program

The dispute centers around Coinbase’s staking program, which the SEC claims constitutes an unregistered securities offering. This legal contention has been ongoing since March 27, when the court ruled that the SEC had sufficient grounds to argue its case. 

In response, Coinbase filed for an interlocutory appeal on April 12, disputing the court’s decision and seeking clarity on a fundamental legal question: does the definition of an investment contract under the Howey test require a post-sale contractual undertaking?

The SEC is Attempting to Sidestep the Howey Test

The Coinbase memorandum argues that no appellate court in the 78 years since the Howey decision has ever found an investment contract without a post-sale contractual obligation. This, according to Coinbase, makes the issue a matter of legal interpretation rather than the straightforward application of established law. 

The company’s legal team asserts that the SEC is attempting to sidestep the Howey test, a claim that highlights the broader implications of this case for the cryptocurrency industry.

“The SEC ignores that no appellate court in the 78 years since Howey has found an investment contract absent a post-sale contractual undertaking,” Coinbase stated in its filing. The exchange contends that this lack of precedent makes the case ripe for judicial clarification.

The SEC’s Inconsistent Approach

Moreover, Coinbase pointed to inconsistencies in the SEC’s approach, noting differences between the regulator’s arguments in this case and its claims in the ongoing lawsuit against Ripple. 

The memorandum also referenced recent legislative developments, such as the House of Representatives passing a bill that would limit the SEC’s jurisdiction over cryptocurrencies, arguing that these actions reflect broader uncertainties about the regulatory framework for digital assets.

SEC vs. Coinbase

The SEC’s lawsuit against Coinbase, filed in June 2023, alleges multiple violations of securities law. In addition to the staking program issue, the SEC claims that 13 of the cryptocurrencies listed on Coinbase are securities. This case is part of a larger regulatory crackdown on the cryptocurrency industry, as the SEC seeks to establish clearer guidelines for the classification and regulation of digital assets.

In its defense, Coinbase has been proactive, not only in the courtroom but also in the public sphere. Shortly after the SEC filed its lawsuit, Coinbase launched the “Stand With Crypto” campaign, which includes a political action committee aimed at advocating for favorable cryptocurrency regulations.

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