SEC Opposes Coinbase’s Interlocutory Appeal: Details

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The U.S. Securities and Exchange Commission (SEC) has strongly opposed cryptocurrency exchange Coinbase’s request for an interlocutory appeal, accusing the exchange of trying to manipulate the interpretation of a “controlling question” in the ongoing lawsuit.

In a May 10 filing with the United States District Court for the Southern District of New York, the SEC stated that Coinbase’s attempts to manipulate the question for appeal are self-defeating.

SEC Explains its Case

The agency reiterated that Coinbase’s opposition stems from its dissatisfaction with the Howey Test, the SEC’s standard for determining what constitutes a security, and its reluctance to adhere to existing securities regulations.

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The SEC’s response came after Coinbase filed an interlocutory appeal on April 12, arguing that an investment contract cannot exist without a post-sale obligation. Coinbase claimed that whether such an obligation exists is a controlling question that could significantly impact the outcome of the case.

Defining a Controlling Question

However, the SEC disputed Coinbase’s assertion, alleging that the exchange is attempting to define a controlling question without providing a clear explanation of what constitutes a “contractual undertaking.”

The SEC pointed out that in the past eighty years, no court has required “contractual undertakings” after a sale, undermining Coinbase’s argument. It emphasized that interlocutory review is not warranted simply because Coinbase proposes a new legal test and disagrees with the court’s rejection of that test.

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Rewriting an Established Legal Precedent

The agency accused Coinbase of trying to rewrite established legal precedent to suit its own policy goals and business needs, providing no compelling reason to certify an appeal prematurely.

The SEC initially sued Coinbase in June 2023, alleging that the exchange violated federal securities laws by listing 13 tokens it considered securities. 

SEC vs. Coinbase

Coinbase argued that the transactions on its platform should not be considered securities, contending that they fall outside SEC regulations. However, the SEC maintained that at least some of the transactions on Coinbase’s platform constitute “investment contracts,” which are recognized as securities under federal securities laws.

The ongoing legal battle between Coinbase and the SEC underscores the broader regulatory uncertainty surrounding the classification of cryptocurrencies and their trading platforms. As the case progresses, it is likely to have significant implications for the crypto industry and its regulatory landscape in the United States.

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