According to Coinbase’s chief legal officer Paul Grewal’s X post from today, the company has decided to appeal a judge’s judgement from last month that permitted the SEC’s action against them to continue.
A decision on whether or not purchases of digital assets constitute “investment contracts” under SEC regulations is at the heart of Coinbase’s motion, which may have far-reaching consequences for the whole digital asset market. The company wants a higher court to rule definitively so that everyone knows what to do.
Coinbase states that for over a century, the Supreme Court and the Second Circuit have maintained the need that an investment contract must include post-sale duties. Regardless, the SEC has been pushing for a different interpretation, implying that the inclusion of digital assets in a token’s ecosystem alone might be considered an investment contract.
The Supreme Court and the Second Circuit have never, in the ninety years after the enactment of federal securities laws, discovered an investment contract devoid of a post-sale duty. According to Coinbase’s legal defense, the SEC has vigorously enforced its position that no such responsibility is necessary in a spate of enforcement proceedings against the digital asset market.
Legislators, regulators, and industry players are all divided on this strategy; even SEC commissioners have acknowledged the regulatory uncertainties affecting the cryptocurrency business, as pointed out by Coinbase. In a sector that has seen tremendous development and economic impact, the business contends that the SEC’s expansive interpretation is sowing doubt.
In response to the SEC’s allegations, Coinbase has filed a legal defense, arguing that the disputed transactions do not include the typical characteristics of an investment contract. This critical legal question needs immediate advice, and the corporation believes the Second Circuit’s appeal is the right vehicle to provide it.
There are certain serious concerns that arise when applying Howey to transactions involving digital assets. Divergent court decisions demonstrate the intricacy of the subject matter, and the fact that members of Congress, senators, and regulatory agencies have differed in responding to them further emphasizes this difficulty. A “cloud of legal ambiguity [] hovers over” the digital asset market because of these splits. According to Coinbase’s legal defense, this lawsuit presents the perfect opportunity for the Second Circuit to dismiss it without any fuss.
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