SEC Asks Judge to Deny Coinbase Motion of Dismissal, Says It Would Be Wrong to Rely on XRP Ruling

The U.S. Securities and Exchange Commission (SEC) has requested that the court deny Coinbase’s motion to dismiss the lawsuit on Tuesday in the agency’s case against Coinbase.

Coinbase had argued that because there is no contract, the definition of an investment contract is not satisfied. The SEC countered, stating, “With the exception of the Wallet application, Coinbase does not here dispute it carried out the functions of exchange, broker, and clearing agency. Thus, the Motion hinges on whether Coinbase intermediated transactions involving investment contracts, and thus securities. It did.”

What The Judge Is Deciding On

The Judge needs to decide whether the SEC’s interpretation of Howey is correct and if its broad and flexible application is appropriate. SEC Chair Gary Gensler has repeatedly stated that the rules are clear, and crypto projects and exchanges “need to come in and register with the SEC.”

The SEC sued the U.S.-based exchange in June, alleging Coinbase operated illegally in the country without a proper licence to run a securities exchange. Coinbase asked the court to dismiss the suit, arguing that as Coinbase did not offer, trade or otherwise engage with securities, the SEC had no jurisdiction over Coinbase.

XRP Not a Security, But Does It Matter for Coinbase Case?

The SEC also alleged that Coinbase improperly used the SEC vs. Ripple case by relying on the ruling that XRP sold on exchanges was not a security. The agency claimed this ruling was dismissed by a judge in the Terra Labs case.

Coinbase cited the SEC vs. Ripple lawsuit, where Judge Torres decided XRP itself is not a security. However, the SEC does not seem to have a consistent position, as courts appear to more frequently reject the SEC’s ideas as “arbitrary and capricious.”

Is The SEC The Right Regulatory Body for Crypto?

There has been an ongoing debate over whether the SEC is the right regulator for crypto. From Ripple’s legal Chief Stuart Alderoty calling out the SEC for ‘viewing everything as a nail while trying to be the hammer,’ to many arguing that the agency has no jurisdiction over crypto. 

Coinbase Chief Legal Officer Paul Grewal said on social platform X, “The assets we list on our platform are not securities and are not within the SEC’s jurisdiction. Court decisions over the past several months have made that plain.”

Stark Remarks and A Loss for The Regulator

In other news, and adding to the SEC’s woes, XRP has just landed a major victory over the SEC. The ruling shows that the SEC approach is not by default guaranteed to succeed, with Judge Torres issuing some stark words toward the regulator, saying, “The Court further notes that in its summary judgment briefing, the SEC presented shifting and inconsistent arguments as to its legal theory…”