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Just a few weeks after the SEC initiated legal action against the platform for enabling unregistered trading involving 12 tokens that the agency classifies as securities, Coinbase’s legal team has requested a full dismissal of the lawsuit, citing issues related to the regulator’s legal authority.
Previous Approval Ignored
A key argument presented by Coinbase’s legal representatives is that six of the twelve cryptocurrencies central to the lawsuit had previously received approval from the SEC in 2021. At that time, the SEC confirmed that these six cryptocurrencies were not classified as securities, following a review of 240 digital assets listed on the exchange shortly thereafter.
Since the SEC had already established that the tokens in question were not deemed securities, Coinbase contended that the current lawsuit is simply a consequence of internal policy shifts that were not communicated to the companies the agency aims to regulate.
“The SEC’s reversal is not a result of significant changes to Coinbase’s operations since 2021; none are claimed. Nor is it due to new information. Nowhere in its Complaint does the SEC imply that Coinbase concealed anything during the extensive cooperative discussions that preceded its transition to a public company. Nor is the reversal a result of legislative changes. […] The only alteration is in the SEC’s stance regarding its authority.”
Beyond Jurisdiction
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Not only are the allegations against Coinbase potentially baseless, but they also fall outside the boundaries of current law and regulatory precedent, according to Coinbase representatives.
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Coinbase’s leadership has consistently emphasized their willingness to engage in discussions with regulatory authorities and to operate within the legal framework imposed upon them, provided that the framework is clearly defined.
In this instance, however, Coinbase asserts that the tokens in question lie outside the SEC’s jurisdiction, as they are not classified as securities by the agency itself. Even if the tokens were to fall under the SEC’s authority, the current lawsuit would represent a violation of Coinbase’s rights and an abuse of legal process.
“Even if the SEC were correct that the assets and services it identifies fall within the scope of its existing regulatory authority, this [legal] action must be dismissed on independent grounds that it violates Coinbase’s due process rights and constitutes an extraordinary abuse of process.”
The motion to dismiss the charges is currently awaiting a response from the judge, who will act as deemed appropriate. Meanwhile, Coinbase’s stock appears to be gradually recovering following the initial downturn that caused it to drop significantly.
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