Coinbase Utilizes Binance Decision in Escalating SEC Legal Conflict
Coinbase, one of the largest cryptocurrency exchanges in the United States, is ramping up its legal battle against the Securities and Exchange Commission (SEC) by leveraging recent judicial precedents and highlighting inconsistencies in the regulator’s approach to the crypto industry.
The exchange is capitalizing on the momentum generated by Judge Amy Berman Jackson’s ruling in the SEC v. Binance case, which determined that secondary sales of Binance’s BNB token do not qualify as securities transactions under the Howey test. This decision has provided Coinbase with valuable ammunition in its ongoing dispute with the SEC.
In a strongly worded letter, Coinbase’s legal team accused the SEC of engaging in arbitrary rule-making without a consistent framework. They argued that the SEC has failed to coherently explain its regulatory process and is now attempting to retroactively impose it on the digital asset industry through what they describe as a “scorched-earth enforcement campaign.”
This legal maneuver follows Coinbase’s lawsuit against both the SEC and the Federal Deposit Insurance Corporation (FDIC) on June 27. The exchange alleges that these agencies conspired to keep the crypto industry out of the banking sector and violated the Freedom of Information Act by withholding documentation related to their rulemaking deliberations, especially regarding Ethereum’s transition to a staking-based ecosystem.
Highlighting a significant discrepancy in the judicial treatment of crypto transactions, Coinbase’s Chief Legal Officer, Paul Grewal, emphasized that two district courts analyzing economically identical transactions from the two biggest US exchanges have reached diametrically opposite conclusions on whether these transactions qualify as securities transactions. Grewal stressed that liability should not depend on the court or judge assigned to the case.
To address this issue, Coinbase is now requesting an interlocutory appeal, citing “substantial grounds for differences of opinion” on whether the Howey Test should be applicable to crypto transactions in the secondary market. This request takes into account not only the Binance case but also Judge Analisa Torres’s opinion in the Ripple vs. SEC lawsuit, which established that secondary sales of XRP did not constitute sales of unregistered securities.
These legal challenges come at a time when political and regulatory attitudes towards cryptocurrencies in the United States are evolving. The rapid approval of spot Ether exchange-traded funds in May signaled a more accommodating regulatory stance, boosting market confidence. Additionally, the House of Representatives passed the 21st Century Act (FIT21) with bipartisan support, aiming to clarify the role of government agencies in regulating digital assets.
However, challenges still persist. The cryptocurrency industry continues to grapple with regulatory uncertainty, prompting some blockchain entrepreneurs to relocate overseas. The recent SEC complaint against Consensys, accusing it of operating as an unregistered broker and engaging in the sale of unregistered securities, further highlights the ongoing regulatory challenges.
