Congressional Allies Aid Coinbase in SEC Overreach Battle

Coinbase leveraged current political movements in the US Congress to bolster its interlocutory appeal against the Securities and Exchange Commission (SEC).

In a May 24 court filing, Coinbase argued that the SEC tried to “side-step” the Howey test, which is a legal framework used to determine assets that qualify as securities. Over the years, the crypto industry and the SEC have battled over applying this standard to digital assets.

Coinbase Accuses SEC of Ignoring Howey Test

Paul Grewal, Coinbase’s Chief Legal Officer, explained the exchange’s position. According to him, the core question was whether the SEC can regulate cryptocurrency transactions as “investment contracts” when no contractual obligations exist.

Grewal noted the SEC’s inconsistency and highlighted its similar appeal in the Ripple case. He stressed the importance of this unresolved legal issue for the crypto industry. The executive also contended that the SEC has an extensive history of being uncooperative with industry leaders.

“From the beginning, we came to the SEC with good-faith efforts to have a conversation about a workable and balanced regulatory framework for crypto innovation within the US. Instead, we – like much of the industry – have been met with slammed doors, changing positions, and litigation,” Grewal said.

Remarkably, Coinbase also pointed out recent legislative developments that could impact the SEC’s jurisdiction on the emerging industry. During the past week, the US House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21), which could shift more regulatory power to the Commodity Futures Trading Commission (CFTC).

This bill, staunchly opposed by SEC Chair Gary Gensler, aims to oversee the crypto markets and enjoys strong support from industry stakeholders.

“Legislators’ disagreement with the SEC’s position meanwhile has deepened: just this week, the U.S. House of Representatives approved on a bipartisan basis comprehensive digital asset legislation that would deny the SEC the expansive jurisdiction it claims,” Coinbase wrote.

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Grewal highlighted this development as a positive shift in the political landscape and a step toward better regulatory oversight. He also reiterated Coinbase’s commitment to obtaining clarity for the industry and resisting overreach by regulators.

“Earlier this week, the House recognized the need for clear rules, and we’re seeking clarity in the Courts as well. But regardless of the timeline, we’re committed to seeing this through – no matter how long it takes to get clarity for the entire industry and push back against overzealous regulators. It’s what the 52 million Americans who own crypto deserve,” Grewal remarked.