Coinbase demands SEC lawsuit dismissal citing Ripple ruling and “abuse of discretion” by the agency

08/05/2023 00:22:39 GMT|ByAaryamann Shrivastava

Coinbase asked a judge to dismiss the Securities and Exchange Commission lawsuit filed against the exchange.
The cryptocurrency exchange noted that the SEC violated due process and abandoned its own interpretation of Securities laws.
COIN has seen a decline of 20% over the past week following a 133% rise from early June to mid-July, trading at $90.40.

Coinbase is one of the many companies that has been a victim of the Securities and Exchange Commission’s (SEC) blatant use of regulation by enforcement policy. But the thin logic of the agency’s enforcement seems to be wearing out as the crypto exchange is firing back with an attempt to put an end to SEC’s attack once and for all.

Coinbase fires back at SEC

Coinbase filed a motion to dismiss the lawsuit that the SEC filed against the cryptocurrency exchange. After Ripple and Binance, Coinbase was the third biggest entity in the crypto space to face the “violation of Securities laws” notice from the regulatory body. However, the crypto exchange sees these accusations as baseless.

In the notice filed with a judge, Coinbase stated,

“The SEC has violated due process, abused its discretion, and abandoned its own earlier interpretations of the securities laws.

The filing also used the recent SEC vs. Ripple lawsuit conclusion as means of dismissing the lawsuit against Coinbase. Judge Torres, on July 13, ruled that while the institutional sales of XRP fell under Securities regulations, public sales did not. Coinbase is using this ruling as a reference point since the exchange dealt with public sales of cryptocurrencies.

Whether the judge considers these arguments as grounds to dismiss the lawsuit is yet to be seen. Until then, Coinbase might continue seeing some more drawdown in price, given the stock has lost more than a quarter of its recent rally.

Trading at $87.31 at the time of writing, COIN was up by 113% from early June to mid-July but has corrected by more than 20% in the last two weeks. The Relative Strength Index (RSI) has also dipped below the neutral line at 50.0, suggesting waning bullishness if the stock fails to recover soon.

COIN 1-day chart

The regulatory hurdles in the United States have been a matter of concern for entities in the crypto space for a while now, which lawmakers are planning to tackle in their own ways.

SEC vs Ripple lawsuit FAQs

Is XRP a security?

It depends on the transaction, according to a court ruling released on July 14:

For institutional investors or over-the-counter sales, XRP is a security.
For retail investors who bought the token via programmatic sales on exchanges, on-demand liquidity services and other platforms, XRP is not a security.

How does the ruling affect Ripple in its legal battle against the SEC?

The United States Securities & Exchange Commission (SEC) accused Ripple and its executives of raising more than $1.3 billion through an unregistered asset offering of the XRP token.

While the judge ruled that programmatic sales aren’t considered securities, sales of XRP tokens to institutional investors are indeed investment contracts. In this last case, Ripple did breach the US securities law and will need to keep litigating over the around $729 million it received under written contracts.

What are the implications of the ruling for the overall crypto industry?

The ruling offers a partial win for both Ripple and the SEC, depending on what one looks at.

Ripple gets a big win over the fact that programmatic sales aren’t considered securities, and this could bode well for the broader crypto sector as most of the assets eyed by the SEC’s crackdown are handled by decentralized entities that sold their tokens mostly to retail investors via exchange platforms, experts say.

Still, the ruling doesn’t help much to answer the key question of what makes a digital asset a security, so it isn’t clear yet if this lawsuit will set precedent for other open cases that affect dozens of digital assets. Topics such as which is the right degree of decentralization to avoid the “security” label or where to draw the line between institutional and programmatic sales are likely to persist.

Is the SEC stance toward crypto assets likely to change after the ruling?

The SEC has stepped up its enforcement actions toward the blockchain and digital assets industry, filing charges against platforms such as Coinbase or Binance for allegedly violating the US Securities law. The SEC claims that the majority of crypto assets are securities and thus subject to strict regulation.

While defendants can use parts of Ripple’s ruling in their favor, the SEC can also find reasons in it to keep its current strategy of regulation by enforcement.

Can the court ruling be overturned?

The court decision is a partial summary judgment. The ruling can be appealed once a final judgment is issued or if the judge allows it before then. The case is in a pretrial phase, in which both Ripple and the SEC still have the chance to settle.

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