Coinbase (COIN) has submitted a response to the Securities and Exchange Commission (SEC) in an effort to have the enforcement action against the exchange dismissed. They contend that the tokens in question may not necessarily fit the definition of an investment contract.
Coinbase argues that the SEC is seeking to broaden its regulatory authority in a manner not authorized by Congress, a move that had been anticipated by insiders.
The initial lawsuit from the SEC targeted Coinbase and Binance back in June. In August, Coinbase moved to have the suit dismissed, with the exchange’s Chief Legal Officer expressing hope that U.S. regulators would be compelled to establish clear and comprehensible regulations for all to adhere to.
According to Coinbase’s filing, the SEC’s current stance defines an investment contract as any instance where someone invests capital with the expectation of its value increasing. Coinbase asserts that this represents a departure from established precedent and serves the SEC’s ambitious expansion of its own authority, encompassing almost all investment activities.
Coinbase’s argument revolves around the notion that assets like artwork, collectibles, and cryptocurrencies can be considered investments but do not qualify as securities unless they involve a contractual claim tied to a business’s future profits or assets. Coinbase maintains that the SEC has failed to demonstrate that trades on its platform confer such claims or a financial stake in any enterprise.
Coinbase further asserts that if the SEC’s position were accepted, a vast array of software-driven services would fall under the classification of securities, marking a significant expansion of the SEC’s authority with no historical basis.
The SEC is encountering legal challenges in its lawsuits against the crypto industry, with important court decisions challenging its assertion that most cryptocurrencies should be classified as securities.
There is growing momentum questioning whether the “major questions doctrine” should prevent the SEC from regulating the evolving crypto legislative landscape, as reported by CoinDesk previously.
In its filing, Coinbase argues that the SEC’s approach exceeds its jurisdiction and raises serious concerns about the separation of powers, particularly when enforcement actions are taken without clear regulatory guidance.
“The separation of powers concerns at the heart of this question are most pronounced when an agency exercises its enforcement authority without due regulatory procedures, all while claiming to enforce a mandate from Congress,” Coinbase stated.