Coinbase says SEC lacks jurisdiction over cryptos on its platform

Coinbase, one of the leading cryptocurrency exchanges in the world, has launched a staunch defence against the Securities and Exchange Commission (SEC) in its ongoing lawsuit. In its first legal response, Coinbase asserted that the digital assets listed on its platform do not fall within the purview of the SEC, challenging the regulator’s jurisdiction.

The SEC initiated the lawsuit against Coinbase earlier this month, alleging that several cryptocurrencies offered through its wallet or trading platforms were unregistered securities. However, Coinbase firmly maintains that these cryptocurrencies are not investment contracts and, therefore, should not be classified as securities.

This is not the first time Coinbase has made such arguments. The company has previously expressed its position in public statements. However, in the recent filing, Coinbase provided a detailed explanation of its stance. According to the exchange, the cryptocurrencies available on its secondary market platform are not part of any arrangements where a promoter sells an asset tied to a contract. Coinbase cited the Supreme Court’s Howey case as an example to support its claim.

The filing further highlights that issuers of the tokens owe no obligations to investors. Coinbase stated, “Because no such obligations are carried in the transactions over Coinbase’s secondary market exchange, and because the value that Coinbase purchasers receive through these transactions inheres in the things bought and traded rather than in the businesses that generated them, the transactions are not securities transactions.”

Coinbase’s legal response also said that the company’s belief that the SEC Chair, Gary Gensler, changed his position on the regulator’s authority over cryptocurrencies. The filing pointed out the company’s repeated requests for regulation and the ongoing discussions in Congress regarding crypto regulation.

The filing strongly criticised the SEC’s approach, stating, “Even were the SEC correct that the assets and services it identifies are within the scope of its existing regulatory authority, this action must be dismissed on the independent grounds that it violates Coinbase’s due process rights and constitutes an extraordinary abuse of process.” Coinbase argued that the company has proactively complied with multiple regulatory bodies, followed the limited formal guidance from the SEC, and sought clarification on how securities laws apply to the digital asset industry.

According to Coinbase’s filing, the SEC has prioritised enforcement actions over rulemaking, a claim that the exchange vehemently opposes.

The remaining sections of the filing meticulously address each point raised by the SEC in its lawsuit, presenting a comprehensive rebuttal.