Coinbase Dismisses SEC Allegations, Claims ‘Extraordinary Abuse of Process’

Coinbase Dismisses SEC Allegations, Claims ‘Extraordinary Abuse of Process’

Cryptocurrency
exchange Coinbase has filed its first legal response to the Securities
and Exchange Commission’s (SEC) allegations, saying the claims “lack all
merit.” It also argued that were SEC’s assertion of regulatory power over its cryptocurrency
services correct, the watchdog’s action violates its “due process rights and
constitutes an extraordinary abuse of process.”

Coinbase
Slams SEC over ‘Securities’ Claims

In early
June, the SEC filed a lawsuit against
Coinbase, alleging
that the largest crypto exchange in the United States, is operating with an
unauthorized trading platform and offers unregistered securities. The financial
watchdog also accused Coinbase of running a digital asset staking-as-a-service
programme without permission.

However, in
its 177-page-long response submitted to the district court
in New York yesterday (Wednesday), Coinbase
said it is not and has never been a securities exchange, broker or clearing
agency. It also argued that cryptocurrencies traded on its platform fall
outside the SEC’s authority because they are not ‘investment contracts’ or assets
pooled from investors to engage in businesses and pay them with profits. Without
this obligation, Coinbase’s listed crypto are not ‘securities’ but ‘just an
asset sale,’ the exchange contended.

To buttress
its argument that assets listed on its platform are not securities, Coinbase
referenced a June 2018 speech by Bill Hinman, the former
Director of the SEC’s
Division of Corporation Finance. In the speech, Hinman said a token all by itself is not a security and the sales
of Ether, the second largest cryptocurrency after Bitcoin, were not securities
transactions.

More Defence from Coinbase

Furthermore,
Coinbase, while expanding on its argument that the SEC has no legal power to
supervise its business, pointed to SEC Chair Gary Gensler’s testimony before
the US Congress in May 2021. During the testimony,
Gensler said crypto
exchanges lacked a regulatory framework and market regulator.

Meanwhile, the SEC in its allegations named 12 cryptocurrencies offered by Coinbase, including Solana (SOL),
Cardano (ADA), Polygon (MATIC), Sandbox (SAND) and Axie Infinity (AXS), as
tokens. However, Coinbase in the filing noted that six of the named tokens were
already trading on its platform as of April 2021 when SEC
accepted its registration statement.

The
exchange said it successfully registered with the securities regulator after “years of discussions”
and “a months-long process of extensive review.”

“Coinbase
had opened its business to the SEC, explaining its listing of digital assets,
provision of trading and staking services, and self-custody wallet software —
core aspects of Coinbase’s operations, then as now,” the exchange explained.

Despite
these developments, Coinbase said it repeatedly continued to seek engagement
with the SEC and even petitioned the
regulator in July
last year to explain what assets it considered securities. Earlier this month,
after the exchange asked a federal court to compel the regulator to
respond, the SEC said it had not decided on what action to take with regard to
the petition, Finance Magnates
reported.

Other pages
in Coinbase’s court filing provided the basis for Coinbase’s opposition to the
SEC’s allegations. The exchange’s clap back comes in the wake of the securities
watchdog’s heightened regulatory
crackdown on crypto
exchanges in the United States.

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This article was written by Solomon Oladipupo at www.financemagnates.com.

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