SEC Challenges Coinbase’s Reliance on Ripple Ruling

A Securities and Exchange Commission (SEC) filing in its case against Coinbase Global has reportedly raised questions about a previous ruling in a case against Ripple.

The issue arose as the SEC asked a federal judge Tuesday (Oct. 3) to deny Coinbase Global’s motion to dismiss the regulator’s lawsuit against the popular cryptocurrency exchange, Reuters reported Tuesday.

The SEC argued that Coinbase was incorrect in relying on a court ruling that found Ripple Labs, a cryptocurrency developer, did not violate federal securities law, according to the report.

The regulator cited a later ruling in a Terraform Labs case that rejected the court’s reasoning in that ruling — raising questions about the previous ruling in the Ripple case, which had been seen as a victory for the crypto industry, the report said.

In July 31 in the Terraform Labs case, a judge ruled that cryptocurrencies are considered securities. This meant that the SEC could pursue securities charges against Terraform Labs and its founder. The court acknowledged that this ruling rejected the approach that led to the ruling in the Ripple case.

In the Ripple case, a judge ruled that the blockchain company’s native XRP token is not a security when sold to the public. That ruling was seen as a victory for the broader crypto sector and for Ripple in its long-running battle with the SEC.

The SEC filed a lawsuit against Coinbase in June, accusing the exchange of operating illegally as a national securities exchange, broker and clearing agency without proper registration, per the Reuters report. Coinbase responded in August by requesting the dismissal of the case, claiming that the SEC lacked the authority to pursue the lawsuit since the digital assets and services in question did not qualify as securities.

In its filing, the SEC said that, apart from its Wallet application, Coinbase did not dispute its role as an exchange, broker and clearing agency, according to the report. The agency emphasized that the motion to dismiss hinges on whether Coinbase facilitated transactions involving investment contracts, which are considered securities. The SEC firmly asserted that Coinbase did indeed engage in such transactions and therefore should not be granted dismissal.