Coinbase has asked a federal court for approval to jump ahead and appeal an earlier decision about investment contracts, which went against the company.
A crypto exchange’s attraction hinges on whether a digital asset deal, without any ties to the asset’s initial creator, is subject to SEC regulation as an investment contract in the United States.
In March, Judge Katherine Failla refused to dismiss the SEC’s lawsuit against Coinbase. In her reasoning, she brought up a previous ruling from a case involving the collapsed crypto firm Terra. According to her, certain digital assets may be classified as investment contracts according to the Howey Test, particularly if they belong to a larger system or ecosystem.
The Howey test is a legal benchmark employed to decide if specific transactions can be classified as investment contracts. This issue holds significant importance for Coinbase given the varying interpretations from different judges. According to Coinbase, this discrepancy represents a major legal question up for debate, which is essential for requesting an interlocutory appeal.
Eleanor Terrett of Fox News pointed out on April 12 that it’s usually difficult to secure interlocutory appeals before a final judgement has been made. (Interlocutory appeals are requests for appellate review of an interim decision or order in a case, not the final judgment itself.)
🚨NEW: Coinbase asks judge for the right to appeal an earlier ruling in its ongoing legal battle with the SEC.
Judge Failla denied Coinbase’s attempt to dismiss the SEC’s charges against it last month. In her decision, she referred to a previous ruling by Judge Rakoff.
— Eleanor Terrett (@EleanorTerrett) April 13, 2024
Last July, the Securities and Exchange Commission (SEC) encountered challenges when they tried to challenge Judge Analisa Torres’s decision regarding Ripple‘s secondary market token sales in the same manner.
Although the chances are slim that appeals such as Coinbase’s will succeed at the interlocutory stage, their approval could lead to important clarifications from higher courts, including the U.S. Supreme Court, for the crypto industry.
Coinbase responds
In a post on social media, Coinbase’s top lawyer, Paul Grewal, pointed out that the main issue is whether an investment involves a formal agreement.
Today, Coinbase submitted a request to the court for permission to appeal an aspect of our ongoing case with the SEC. The point of contention is whether an “investment contract” necessarily involves a contractual agreement. Our position is yes, but the SEC holds a different view on this controlling issue: 1/5 (Paraphrased version)
— paulgrewal.eth (@iampaulgrewal) April 13, 2024
According to the exchange, an investment agreement should include commitments from both parties following the transaction, whereas the SEC holds a contrasting viewpoint.
In simple terms, the decision of this ongoing legal battle between the crypto industry and the Securities and Exchange Commission (SEC) carries significant weight for the US cryptocurrency market. If the SEC classifies crypto transactions as investment contracts, these activities will fall under regulatory supervision, which may involve registration procedures.
Yet, companies such as Coinbase contend that when digital assets are bought and sold among investors on secondary markets, they lose their connection to their original creators, making it questionable for the SEC to maintain regulatory oversight.
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2024-04-13 22:30