SEC Says Coinbase Knowingly Violated Securities Laws

The court case between Coinbase and the US securities and exchange commission (SEC) has been on for weeks, and the process is getting more interesting. In the latest happenings, the SEC has accused Coinbase of Knowingly violating securities laws.

The SEC had in June dragged Coinbase to court on allegations of securities laws violation. Coinbase in a recent response filed for dismissal of the case, saying it was baseless. Coinbase argued that the SEC had cleared the exchange in 2021 after rigorous scrutiny prior to its going public.

The SEC however says that Coinbase knew it was violating securities laws, and the initial clearance it gave the company doesn’t in any way suggest that the agency was in support of Coinabse’s mode of operation.

“Coinbase, a multi-billion-dollar entity advised by sophisticated legal counsel, argues it was unaware that its conduct risked violating the federal securities laws, and suggests that by approving Coinbase’s registration statement in 2021 the SEC confirmed the legality of Coinbase’s underlying business activities—at that time and for all time,” SEC lawyers wrote Judge Katherine Polk Failla of the Southern District Court of New York.

“In other words, Coinbase adopted the very legal framework as a basis for making listing decisions that it now claims has no applicability to its activities,” they continued.

Regulatory Demands on Coinbase

Coinbase is a top cryptocurrency exchange in the US and one of the top ones globally. The exchange has a long list of listed cryptocurrencies just like any other exchange, but is under scrutiny by the SEC for allegedly listing and trading securities.

The SEC chair Gary Gensler had earlier said that all crypto assets apart from Bitcoin were securities. This definition has been controversial, since the commodities and futures trading commission (CFTC) in its own definition said Ethereum is also a commodity like Bitcoin.

By the SEC’s definition, all crypto exchanges that list any asset other than bitcoin is technically a securities exchange. This makes all crypto exchanges securities exchanges, but Coinbase is so far one of the few ones targeted by the SEC.

This raises questions on whether there are other motives for targeting the few exchanges, one of which is Bittrex. Bittrex, like Coinbase, has filed for a dismissal of the SEC’s case against it. The SEC however hasn’t responded to the Bittrex filing to this point.

The SEC also recently named a few crypto assets like Solana, Cardano, and Polygon as securities in the course of presenting its case in the Coinbase case.

Coinbase Demands for Regulatory Clarity

The SEC has so far failed to come up with clear guidelines on how to distinguish between commodities and securities. After declaring any crypto asset other than bitcoin a security, it recently picked out a few that it has named securities.

This was what led Coinbase to file a case in court demanding that the SEC come up with clear regulations for the crypto industry or leave it alone. The SEC has since responded saying there are sufficient rules for the industry, but the kind of regulations Coinbase is demanding for would take a long time to come up with.

The crypto industry is keenly watching to see the outcome of the case with Coinbase and Binance, since it will be a critical determinant of the future of crypto in the US.

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