SEC think they have found the smoking gun in their case vs Coinbase
The SEC recently made a big hoopla and presumably some sort of victory dance that was mandatory in their head office. They think they have found the smoking gun that will tip the scales in their case against Coinbase. Let's take a look.
The smoking gun
The smoking gun is prevented by the SEC in their recently filed response to Coinbase's filed defense strategy, arguing that the SEC has no jurisdiction over the coins listed on their exchange. As they fall outside the scope of what makes them securities. The smoking gun in question the SEC claim to have found is in fact something that Coinbase themselves have said. And that is due to the fact that they are a publicly traded company. They have informed their shareholders on numerous occasions about the risks and the fact that what they are trading on their platform could be seen as securities.
However, the Complaint pleads facts to establish that at least 13 of the crypto assets Coinbase makes available for trading are investment contracts, and thus securities, under Howey—which is more than sufficient to defeat a Rule 12(c) motion.
The SEC then, again, iterates they believe at least 13 of the crypto assets offered on Coinbase are securities. And Coinbase should have known that too. And because of that and the fact they informed their shareholders. The SEC argues that Coinbase willingly took on that risk.
In my humble opinion, the fact that Coinbase gave a heads-up to their shareholders that there might be a legal tussle in the future. I do not really see that as anything other than the board doing their job. Would the SEC have preferred that Coinbase kept their shareholders in the dark? Here I thought it was the SEC's purpose to protect investors. But by the looks of things they actually prefer that people are kept in the dark. It is not really a good look for the SEC. I mean it is not like Coinbase said "hey we will be speeding in the near future so we might get a speeding ticket". If anything they appeared to see the writing on the wall after their interactions with the SEC. Where the SEC gave them the runaround for months. More or less making it impossible for them to register. Same as they did with Robinhood.
I have a sneaky suspicion that Luke Combs is or have worked for the SEC, seeing he possesses similar math skill as them
And in case you like me were wondering about the exact number that is making up the countless cryptofirms that have registered with the SEC. Seeing that is according to them done in a jiffy and something everyone is doing. Gary Gensler even cited a specific firm in an interview as a recent signed. I reached out to the SEC and asked them. And while it is not super fresh data, but up to June 12 of this year there are five plus four firms registered with the SEC. That's 9 in total. And in case you wonder why they are broken down into two, it is because you apparently can register for different things, under different categories? I confess I don't really get it. But there are five registered under the Securities Exchange Act of 1934. And there are four registered under the Securities Act of 1933.
Nine in total. Must be because it is too easy to register. And that the SEC seems to be trustworthy. Must be...
SEC responds to Coinbase's legal defense
In their 4 page response, the SEC argues that there simply is one thing the court needs to consider. And according to them, that should be more or less a no issue. They argue that there are three things to consider, normally; "has Coinbase acted as (1) an unregistered (2) intermediary (i.e., national securities exchange, broker, and/or clearing agency) (3) with respect to securities transactions?". And according to the SEC the answer to these first two questions is yes and yes. Thus leaving only the third question unanswered, whether they have partaken in securities transactions.
This is true irrespective of Coinbase’s novel and strained reading of Howey, its meritless equitable defenses, and its improper, 32-page “Preliminary Statement” with 105 footnotes of evidence, which is not integral to the Complaint and thus should be precluded.
The SEC looks to be arguing that the court more or less should throw out Coinbase's entire legal defense. They go on to argue that the assertions made by Coinbase are wrong. They argue that regarding the need for an investment contract to be present, this is completely wrong and unfounded. And like Coinbase they then cite cases supporting their arguments.
The second claim made by Coinbase they argue is also false. Regarding the secondary market for cryptocurrencies. Coinbase argues that a cryptocurrency could be security when there is an ICO, initial coin offering. But when just traded on an exchange it becomes something else. And this they argue should fall outside the jurisdiction of the SEC, as it now according to them failed the Howey test. The SEC argues that because Coinbase can not cite any legal president to support their claims they are wrong. And then makes some more arguments and cites some cases supporting them.
Personally, I find it kind of interesting to follow along with this case, as to me it is looking like it is right in the grey zone of where new meats old. But I do find the SEC's second argument to be extremely asinine. There is no legal president so they are wrong. I mean, that is the whole argument Coinbase is making. They fall outside the scope of the current regulations. So of course there is no legal president, if there were it would show where the case would fall. Sometimes I think the US legal system was simply made as a social experiment, to see how far out of hand things can go before people start to react. And by the looks of things we have not yet reached that point.
If you want to read the SEC's response to Coinbase in its entirety. You can find a link to it here or down below.
What are your thought on this, are you as interested to follow it as I am? Or are you more of a "let's just be done with it" person? Let me know in the comment section, and also share if there are some other legal cases you are currently following.
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