Federal Judge Questions SEC on Coinbase Lawsuit Over Crypto Securities

In a crucial court hearing on Wednesday, a federal judge pressed the U.S. Securities and Exchange Commission (SEC) for specific details about its lawsuit against Coinbase, the world’s largest publicly traded cryptocurrency exchange. Judge Katherine Polk Failla sought clarification on the SEC’s stance regarding what specific features of a crypto token constitute an investment contract.

Coinbase, along with other crypto companies, has vehemently requested the dismissal of the SEC’s case, arguing that crypto assets, unlike stocks and bonds, should not be subjected to oversight by the SEC. The exchange contends that the regulatory body has exceeded its authority in attempting to regulate the crypto industry.

The SEC filed the lawsuit against Coinbase in June, alleging that the exchange facilitated trading of at least 13 crypto tokens, including Solana, Cardano, and Polygon, which, according to the SEC, should have been registered as securities. Additionally, the SEC claimed that Coinbase was operating illegally as a national securities exchange, broker, and clearing agency without proper registration.

Read more: Coinbase Says It’s Ready For Litigation With SEC

During the hearing in a Manhattan court on Coinbase’s motion to dismiss the case, Judge Failla questioned SEC attorneys regarding the specific attributes that, in the regulator’s view, classify these 13 tokens as securities. Expressing her concern, she remarked, “I am concerned… that what you’re asking for is to broaden the definition of what constitutes a security.”

Patrick Costello, SEC Assistant Chief Litigation Counsel, countered that the crypto tokens in question serve as a fundamental component of a larger “enterprise” or blockchain network. He argued that these tokens function similarly to an investment contract, stating, “When the value of the network or the ecosystem increases, so does the value of the [associated] token.”

The hearing brings to light the ongoing debate surrounding the regulatory framework for cryptocurrencies in the United States. The outcome of this case could have far-reaching implications, potentially shaping the regulatory landscape for the broader crypto industry. As the court proceedings unfold, industry participants, legal experts, and crypto enthusiasts closely await a resolution that could define the boundaries of SEC authority in the rapidly evolving world of digital assets.

Source: Reuters