Coinbase’s Motion For Interlocutory Appeal Should Be Rejected, SEC Argues

The United States Securities and Exchange Commission (SEC) has responded to Coinbase’s recent motion, as the legal battle between the regulator and the prominent cryptocurrency exchange heats up. The US-based exchange filed an interlocutory appeal in April after a judge denied its request for case dismissal.

In June 2023, the SEC sued Coinbase, the largest crypto exchange by trading volume in the United States, for operating as an unregistered securities exchange, broker, and clearing agency. In the latest development, the SEC has asked the court not to allow the exchange to appeal.

No Substantial Ground For Difference In Opinion: SEC

On Friday, May 10, the Securities and Exchange Commission submitted its response to Coinbase’s recent interlocutory appeal. The US financial regulator argued that the exchange’s motion should be denied irrespective of “which version of the question for certification Coinbase proposes.”

In its motion for an interlocutory appeal, the exchange claimed that there is a “substantial ground for difference in opinion” about the application of the Howey Test, which is used to determine if an asset qualifies as an investment contract and security. The SEC addressed this in its filing, saying:

More broadly, it is clear that Coinbase does not like Howey and the current framework for securities regulation, having decided to arrange its business affairs in ways that may make it costly to comply with existing law. But Coinbase’s decision to do so, and its desire to rewrite settled, decades old legal precedent to fit its own policy goals and business needs provides no compelling reason to prematurely certify an appeal in this case.

Judge Katherine Polk Failla, who denied Coinbase’s motion to dismiss the SEC’s charges, will have to rule on the motion for interlocutory appeal. If she approves the request, then the exchange will be able to send the motion to the US Court of Appeals for the Second Circuit.

“Let’s Have An Honest Conversation” – Coinbase CLO Responds

Paul Grewal, Coinbase’s chief legal officer (CLO), took to the X platform to tackle the SEC’s response to the interlocutory appeal motion. Grewal called out the regulatory agency for contradicting its legal arguments in similar cases.

Today @SECGov filed its response to our request to file an interlocutory appeal with the 2nd Cir. The Commission couldn’t help contradicting its own arguments for the same kind of appeal in Ripple. Here’s just example–compare what they said before to what they say now. 1/3 pic.twitter.com/LkbXefV07N

— paulgrewal.eth (@iampaulgrewal) May 10, 2024

Specifically, the CLO highlighted the differences in the SEC’s argument in a similar appeal in its case against Ripple. Grewal added: 

Let’s at least have an honest conversation. Forget about a split across agencies, circuits and elsewhere. There’s not even a consensus about Howey and digital assets among the district judges in the same courthouse at Foley Square.

While this latest motion and a potential interlocutory appeal might prove pivotal in this legal showdown, it remains to be seen how this case will play out. Moreover, the US SEC and Coinbase have other ongoing court battles, most notably the exchange’s lawsuit against the commission for failing to provide regulatory clarity.

The total cryptocurrency market capitalization at $2.192 trillion | Source: TOTAL chart on TradingView

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