US Regulators Intervene in Coinbase’s Unregistered Securities Case

Coinbase’s legal battle over cryptocurrency status hit a new hurdle on Tuesday as US⁣ state authorities and ⁢legal experts joined a campaign by federal‌ securities regulators to argue ‍that the company was unlawfully operating an ⁤unregistered exchange.

The Securities and Exchange Commission’s crackdown on one of the country’s largest crypto exchanges was seen as vital to the future of crypto, with the sector accusing the agency of regulating through enforcement in the absence of new legislation ⁤from the ‍US Congress.

Now, ‌three new amicus briefs‌ allow interested parties but not directly affected by the case to support the Court’s argument that crypto is neither significant nor special and that the SEC can take over digital⁢ assets under current ⁣law .

While Coinbase has tried‌ to argue that the SEC is overstepping ​its authority, the regulator’s legal position is neither new ⁢nor notable, ⁤argued the North American Securities Administrators Association (NASAA).

“The ⁢SEC’s theory in this case is consistent with the agency’s longstanding public position” and ‍“is well within the bounds ‌of applicable law,” says the ‌filing from NASAA, a century-old organization whose 68 members include securities regulators All 50 US⁣ states added that digital assets should not⁤ receive special treatment.

“For ⁢the⁣ vast majority of digital assets, there is no practical economic use case identified or widely used other than speculation,” the filing said. “While they receive an inordinate amount of attention from the media and regulators ‍because they are aggressively marketed⁣ and are fertile ground for fraud, this attention‍ belies the very limited ⁣size and importance of ⁢this ‘industry’ in the context ‌of the broader U.S. economy .”

Another brief filed by two academic administrative lawyers argued ⁣that Coinbase was misguided in⁤ invoking a legal doctrine that prevents government ⁣agencies from making ⁣economically significant interventions without⁣ clear authority from Congress.

“The major issues doctrine is simply irrelevant‌ to this lawsuit” because the Coinbase case is about enforcement against⁢ a⁤ specific company and not about quasi-legislative regulation, says the filing‍ by Todd Phillips ‍of the Georgia State University and Beau Baumann‌ of Yale Law School. “Instead of⁤ asserting new ⁣powers to regulate the ‘national economy,’ the SEC filed a specific complaint in federal⁢ court.”

The Supreme Court recently expanded⁢ the principal questions doctrine when it rejected President Joe Biden’s cancellation of student debt – it However, it would be “absurd” to apply ⁤them to cryptocurrencies and create a different definition of securities for‍ cases filed by private ⁤litigants rather than government​ agencies, ​the pair said.

These pro-government submissions were backed up by the New Finance Institute, a nonprofit organization that runs two‌ blogs on finance and financial⁢ empowerment, which argued ‍that Congress⁢ intended investor protections to be broader in scope than just capital-raising transactions.

“The purchase of crypto tokens should not be classified as an investment due to the lack of cash flow generation (a long-standing requirement for any true investment),” the NFI filing states. “However, such purchases are still investment contracts because the ⁤purchasing public is denied full and‍ fair disclosure that they are not investing.”

The SEC filed cases against a number of crypto exchanges earlier this year, including Coinbase, Binance and Bittrex, argued that the native ⁤coins⁢ for blockchains such as Solana ⁣(SOL), Cardano (ADA) ⁢and Polygon (MATIC) were similar to traditional financial instruments.

These were⁤ accompanied by ​government measures from states such as Alabama, California and New Jersey. Coinbase has⁢ sought to dismiss the federal case, arguing that cryptocurrencies ​are​ outside the SEC’s jurisdiction.