Adamant? Coinbase Accused of Ignoring Howey Test by U.S. Regulator

The United States Securities and Exchange Commission (SEC) has responded to Coinbase's recent filing, alleging that the exchange intentionally acted as an unregistered securities intermediary. Coinbase had filed a request to dismiss the charges brought by the SEC in June.

In June, the SEC initiated legal action against two major players in the cryptocurrency industry, Binance and Coinbase. In response to the lawsuit, Coinbase swiftly filed a request to dismiss all charges, arguing that the SEC had previously approved its business model when it allowed the company to go public in 2021. Despite Coinbase's repeated attempts to engage in positive regulatory dialogues with US watchdogs and seeking clarity on regulatory policies towards cryptocurrencies, the SEC has not responded to its requests.

On July 7, the SEC issued a response to Coinbase's request to dismiss the charges. The filing points out that Coinbase's own actions contradict its argument that it was unaware of the potential violation of federal securities laws. The SEC claims that Coinbase has repeatedly warned its shareholders about the risk of its traded crypto assets being classified as securities and violating securities laws. This warning was even included in the registration statement Coinbase presented as proof that the SEC had approved its conduct.

The SEC filing highlights Coinbase's disregard for the "controlling law under Howey", which has been around for over 75 years. It points out two flawed arguments made by Coinbase in its request for dismissal: firstly, that an investment contract must be a formal, common law contract, and secondly, that a crypto asset cannot be considered an investment contract when traded between non-issuers on a platform like Coinbase's. The SEC continues to assert that both arguments are incorrect.