SEC asks court to deny Coinbase’s motion for interlocutory appeal

The Securities and Exchange Commission asked a court to deny Coinbase’s motion for an interlocutory appeal on Friday.

The regulatory agency and the crypto exchange have been locked in a legal battle for nearly a year after the agency charged Coinbase with operating as an unregistered exchange and alleged that its Staking program was violating securities laws.

“Interlocutory review is not warranted simply because Coinbase proposes a new legal test and disagrees with the Court’s rejection of that test, nor can it be supported by Coinbase’s desire for quicker appellate review of its invented test,” the SEC said in the filing.

The SEC further argued that there’s no “substantial ground for difference of opinion,” because that would mean there is more than the obvious disagreement between the two parties. Coinbase, the SEC said, has yet to create “substantial doubt” about the court’s ruling.

“It is also possible that Coinbase simply does not like the answer provided for years now by the SEC and the courts, having decided to structure its business in ways that now may make it difficult or costly to comply with the securities framework put in place by Congress and the SEC over our capital markets for nearly a century,” the SEC wrote.

Newsletter

Subscribe to The Breakdown

“But Coinbase’s desire to change the rules, to do so quickly, and to enlist the federal judiciary in this endeavor, supply no basis to certify an appeal,” the filing continued.

Coinbase Chief Legal Officer Paul Grewal, in a post on X, pushed back against the response. He said that the SEC “couldn’t help contradicting its own arguments for the same kind of appeal in Ripple.”

Loading Tweet..

The SEC’s response comes after Coinbase filed for an interlocutory appeal last month. Coinbase wanted a higher court to review whether or not the SEC can apply Howey to crypto transactions.

The company noted that the amount of differing opinions — from regulators to politicians on Capitol Hill — shows the “difficulty of the subject matter.”

Coinbase and the SEC have been engaged in multiple legal battles since last year after the SEC served the former with a Wells notice last March. Coinbase took to the courts afterward, asking for answers from the regulator. Then, in June, the SEC filed its suit.

Last December, the SEC denied Coinbase’s rulemaking petition, which it filed in 2022. The petition asked the regulator to create rules for crypto and argued that the current securities laws don’t work for the blossoming industry. The SEC, notably, had made the opposite claim and it shows through its regulation-by-enforcement approach under Chair Gary Gensler.

Coinbase, in a ruling last month, was mostly denied its motion to dismiss. However, the court found that the SEC’s claims against its wallet service — the SEC alleged that it acted as an unregistered broker by offering the service — were unfounded.

“The factual allegations concerning Wallet are insufficient to support the plausible inference that Coinbase ‘engaged in the business of effecting transactions in securities for the account of others’ through its Wallet application,” Judge Katherine Polk Failla wrote.

Failla said that the SEC could move forward with its claims against the Staking service and Coinbase’s role as an unregistered exchange. The SEC, she said, “plausibly alleged” that Coinbase violated parts of the security act.

The reasoning, she said, is because Coinbase’s “managerial effort” could meet Howey’s standards, which would make it a security offering.

Updated May 10, 2024 at 5:17 pm ET: Added comment from Coinbase CLO.

Get the news in your inbox. Explore Blockworks newsletters:

The Breakdown: Decoding crypto and the markets. Daily.
0xResearch: Alpha in your inbox. Think like an analyst.
Empire: Crypto news and analysis to start your day.
Forward Guidance: The intersection of crypto, macro and policy.
The Drop: Apps, games, memes and more.
Lightspeed: All things Solana.
Supply Shock: Bitcoin, bitcoin, bitcoin.