Coinbase and the SEC are set to face off in federal court over the regulator’s cryptocurrency authority


Written by Hannah Lange, Chris Prentice and Judy Godoy

(Reuters) – Coinbase will argue at a court hearing on Wednesday that the U.S. securities regulator should drop its case against it because tokens traded on its cryptocurrency exchange do not resemble securities, a person familiar with the case and court filings said.

The hearing is the next major development in a closely watched legal battle between Coinbase and the SEC that will likely have implications for digital assets as it may clarify the SEC’s jurisdiction over the sector. Coinbase’s plan is to rely on the basic argument it made in court filings: that the SEC is overstepping its bounds and that the assets it lists for trading are not securities.

Coinbase, the world’s largest publicly traded cryptocurrency exchange, is expected to argue that crypto assets are different from assets such as stocks or bonds that are regulated by the US Securities and Exchange Commission and that the SEC has overstepped its authority. Other cryptocurrency companies have expressed similar views.

The Securities and Exchange Commission sued Coinbase in June, saying the company facilitated the trading of at least 13 crypto tokens that should have been registered as securities and was illegally operating as a national securities exchange, broker and clearing agency without registering with the regulator.

The SEC also targeted Coinbase’s “staking” program, through which it pools assets to verify activity on blockchain networks and takes commissions in exchange for “rewards” to customers. She said the program should have been registered with the agency.

The lawsuit is one of a large group of lawsuits filed by the SEC against the cryptocurrency sector on the grounds that many crypto assets are securities. The agency initially focused on companies that sell digital currencies, but under the leadership of President Gary Gensler, it shifted focus to companies that offer trading platforms and clearing activities, and act as intermediaries.

Cryptocurrency companies deny that most tokens meet the definition of collateral and say legislation is needed to regulate the industry.

Coinbase in August asked Judge Katherine Polk Failla to dismiss the SEC’s lawsuit, citing a ruling in a separate case in which the judge found that Ripple Labs did not violate federal securities law by selling its XRP cryptocurrency token on public exchanges — which A huge victory for the cryptocurrency sector.

But the SEC argued that its case against Coinbase should proceed, citing a previous ruling by a different court in the case of cryptocurrency developer Terraform Labs that vindicated the regulator’s position.

(Reporting by Hannah Lange in Washington and Chris Prentice and Judy Godoy in New York; Editing by Michelle Price and Christopher Cushing)

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