Coinbase Moves to Dismiss SEC Lawsuit, Alleging Crypto Falls Out of Regulator's Oversight

Coinbase (COIN) asked a judge to dismiss the Securities and Exchange Commission case against it, alleging the regulator is stepping well outside of its jurisdiction in suing the crypto exchange.

The SEC sued Coinbase in June, alleging the exchange violated federal securities laws by operating as an unregistered broker, exchange and clearing agency for cryptocurrencies that were securities, naming 13 tokens as examples of coins it believed met those requirements. Coinbase pushed back in a filing on Friday, saying the SEC isn't claiming there are investment contracts involved in any of these examples.

"The transactions over Coinbase’s platform and Prime are not, and do not involve, contractual undertakings to deliver future value reflecting the income, profits, or assets of a business. They are commodity sales, with the obligations on both sides discharged entirely the moment the digital token is delivered in exchange for payment," the filing said.

The filing pointed to last month's ruling in the SEC's case against Ripple, saying the underlying facts were "substantially identical to those alleged here." A federal judge ruled that Ripple's programmatic sales — where it listed XRP on exchanges for anyone to purchase — weren't securities transactions, whereas Ripple's direct sales to institutional clients were.

Meanwhile, Coinbase said that SEC allegations that Coinbase's staking and wallet services violate securities laws should be dismissed for similar reasons.

Coinbase also pointed again to the "Major Questions Doctrine," which it raised in a previous filing, saying the suit would vastly expand the regulator's jurisdiction to include the cryptocurrency industry.

Coinbase attached 10 different exhibits to its motion, including transcripts from a hearing in the SEC's case against LBRY and orders from previous cases involving Howey Test questions. The Howey Test is a standard set by the Supreme Court in 1946 that regulators can use to determine what constitutes an investment contract.

The SEC has until Oct. 3 to file a response to Coinbase's motion, and any amicus briefs supporting Coinbase can be filed until Aug. 11.

Coinbase signaled it would file to dismiss the lawsuit during an earnings call on Thursday.

Chief Legal Officer Paul Grewal said during the call that Coinbase believed it could win the case.

"We expect to win. But it's important to understand that our goal across not just the litigation but all of our efforts engaging with the SEC and engaging with the U.S. government as a whole is to achieve regulatory clarity to protect consumers, promote innovation and essentially establish clear rules of the road that everyone can understand and follow," Grewal said.

UPDATE (Aug. 4, 2023, 12:40 UTC): Adds additional detail.