Coinbase Seeks Court Review in SEC Lawsuit

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American cryptocurrency exchange Coinbase has taken a significant step in its legal battle with the U.S. Securities and Exchange Commission (SEC) by requesting the United States District Court examine a key issue raised by the SEC in its lawsuit against the exchange.

In an April 12 filing with the U.S. District Court for the Southern District of New York, Coinbase argued that a specific “controlling question” raised by the SEC is ripe for immediate review, as it is not encumbered by factual disputes. The question at the center of the dispute is whether an investment contract necessitates “something contractual.”

Coinbase Legal Chief Weighs In

Paul Grewal, Coinbase’s chief legal officer, elaborated on this issue, stating that Coinbase holds the view that an investment contract requires contractual obligations post-sale, whereas the SEC argues otherwise.

This move follows U.S. District Judge Katherine Failla’s denial of Coinbase’s motion to dismiss the SEC’s case, which alleges that the exchange operates as an unregistered exchange, broker, and clearing agency.

Significant Impact on the Ongoing Case

If the court decides to approve Coinbase’s request for an interlocutory appeal, it could significantly impact the ongoing case, which has been ongoing since June 2023. 

Coinbase contends that a reversal of the question presented could effectively dismiss the SEC’s principal claims, which form the bulk of the complaint’s factual allegations.

“We’re asking to take this up on appeal earlier than normal because it’s critical to our industry. The SEC’s action against us and other digital asset companies goes way beyond the legal authority granted by Congress and puts an unjust cloud over US digital asset innovation,” Grewal said.

Urgency of Resolving the Dispute

Grewal emphasized the urgency of resolving the dispute over crypto transactions, citing its critical importance to the wider crypto industry. 

Despite the early filing of the appeal request, just 17 days after the motion to dismiss was denied, Coinbase justified the action as necessary for addressing what it perceives as overreach by the SEC and its potential adverse impact on digital asset innovation in the U.S.

Coinbase Moves Closer to Victory?

Coinbase’s legal maneuver comes shortly after a favorable ruling in a civil lawsuit, where the United States Court of Appeals for the Second Circuit ruled in favor of Coinbase. 

The ruling affirmed that secondary sales of cryptocurrencies on its platform do not violate the Securities Exchange Act, marking a significant victory for the exchange in the legal arena. Grewal also noted that the exchange will continue to push for clarity for the crypto industry and “the 52 million Americans who own digital assets. In the meantime, we’re business as usual.”

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