Coinbase, one of the largest crypto exchanges globally, bit back on Wednesday during a hearing to decide whether it committed securities violations. Coinbase is motioning to dismiss the suit.
The U.S. Securities and Exchange Commission filed the suit in June 2023, just one day after it sued Binance, the largest crypto exchange by volume, over securities matters.
In the SEC’s claims against Coinbase, it also alleged that the 13 cryptocurrencies available for trading on the exchange were securities. The list includes major tokens like Solana, Cardano and Polygon. Although separate, the Binance suit also had 12 crypto assets mentioned as securities. The two had six overlapping tokens that the SEC marked as securities: SOL, ADA, MATIC, FIL, SAND and AXS.
Coinbase has requested that New York District Judge Katherine Polk Failla dismiss the suit because it alleges that cryptocurrencies aren’t under the jurisdiction of the SEC as shares in companies (stocks) are. The exchange, along with other crypto firms, thinks the SEC has overstepped its prerogative.
Failla questioned the SEC during the Manhattan court hearing. The judge requested that the securities-focused agency explain what elements of crypto assets constitute investment contracts. Failla noted her concerns that the SEC is asking for permission to “broaden the definition of what constitutes as a security.”
Patrick Costello, an SEC assistant chief litigation counsel, argued that because crypto assets are typically tied to a blockchain network or “enterprise,” they are similar to investment contracts. The agency argued that Coinbase is trying to make its own Howey test, the legal framework that determines whether an asset is an investment contract.