Coinbase, SEC clash over crypto regulation in federal court

Coinbase and the SEC engage in a legal battle in federal court concerning the regulatory authority of the watchdog over cryptocurrencies.

During a court hearing on Wednesday, a federal judge questioned the U.S. securities regulator about the specifics of its lawsuit against a popular cryptocurrency exchange platform, Coinbase. The judge sought clarification on the specific attributes that classify a crypto token as an investment contract. 

Coinbase has requested Judge Katherine Polk Failla to dismiss the case. The argument is rooted in the assertion that crypto assets, distinct from stocks and bonds, do not fall under the purview of the U.S. Securities and Exchange Commission (SEC). Alongside other crypto entities, Coinbase contends that the SEC has exceeded its regulatory authority.

In its legal action, the SEC also directed its attention to Coinbase’s “staking” initiative, a program where assets are pooled to validate activity on blockchain networks. Coinbase earns commissions and provides “rewards” to customers in return. The SEC contends that this program should have been registered with the agency.

This lawsuit is part of a series filed by the SEC against the crypto industry, asserting that numerous crypto assets qualify as securities. Initially focusing on companies involved in the sale of digital tokens, the SEC, under the leadership of Chair Gary Gensler, has expanded its scrutiny to include firms providing trading platforms, engaging in clearing activities, and serving as broker-dealers.

While the SEC previously found success in lawsuits against companies issuing tokens, it faced a setback last year in a significant case against Ripple.

Crypto companies vehemently deny that the majority of tokens meet the criteria for securities and argue for the need for legislation to regulate the industry properly.

Source: Newsroom