According to a report from CoinDesk, the US Securities and Exchange Commission (SEC) and the cryptocurrency exchange Coinbase argued in court on Wednesday (17th) about whether the trading of dozens of tokens constitutes securities and other related issues. However, the federal judge ultimately did not decide whether to dismiss the SEC’s lawsuit against Coinbase.
Both the SEC and Coinbase agreed during the court hearing that the tokens themselves are not securities. The SEC’s lawyer argued that each transaction is equivalent to a buyer investing in a token ecosystem, hoping to profit from it, and as long as any of these transactions can be considered an investment contract, then Coinbase would be violating securities laws. However, the exchange rebutted that these transactions occur in the secondary market, without any contracts, and therefore should not be subject to securities laws.
Coinbase is attempting to persuade Judge Katherine Polk Failla of the Southern District of New York to dismiss the SEC’s allegations of wrongdoing. However, the judge did not immediately make a ruling or indicate a timetable for the final decision, with expectations that it will be made in the coming weeks. The final decision could impact the outcome of similar cases against exchanges like Binance and Kraken by the SEC.
Arguments from both sides:
SEC lawyer Patrick Costello believes that regardless of how buyers acquire digital assets, they are essentially entering into a contract, “tokens are the key to entering the ecosystem. Without the ecosystem, the tokens are worthless.”
William Savitt, a lawyer from Wachtell, Lipton, Rosen & Katz representing Coinbase, argued that the definition of an “investment contract” actually requires contractual obligations between the token issuer and the buyer. He stated, “There must be a statement expressing an enforceable commitment. Without such a statement, there is no contract.” He referred to this as a “pure legal issue.”
SEC lawyers also attempted to counter warnings that the SEC’s position could expand the definition of securities to collectibles such as art or trading cards, stating that these assets lack a core ecosystem. Costello mentioned that collectibles have their own value, “No one can make a baseball card more valuable.”
Judge Failla also mentioned key rulings in other cryptocurrency litigation cases, including the SEC’s loss against Ripple and the victory in the Terraform Labs case. She stated that Judge Jed Rakoff determined in the Terraform case that cryptocurrency transactions are securities, “which doesn’t surprise me,” but this did not involve tokens listed on secondary exchanges, she said, “Terraform is very different from this case.”
Judge Failla also acknowledged some hesitation in invoking the “Major questions doctrine” as a “nuclear option.” Coinbase argues that based on this principle, the SEC’s actions should be paused until Congress has the opportunity to enact cryptocurrency-related laws.