Based on the response filed by the United States Securities and Exchange Commission (SEC), Coinbase was aware of the possibility that federal securities laws would be applicable to its operations. The company openly informed its shareholders about the risk involved, as stated in a letter sent by the SEC to a district judge on July 7. The response from the regulator emphasizes that Coinbase, being a well-established and legally advised entity, has chosen to disregard longstanding legal principles under the Howey test in an attempt to create its own criteria for determining investment contracts.
The SEC’s letter is in response to a previous filing made by Coinbase, where the exchange indicated its intention to file a motion for judgment. In that filing, Coinbase referred to comments made by SEC Chair Gary Gensler during a Congressional hearing, suggesting that the SEC lacks authority over crypto exchanges and that only Congress can confer regulatory power in this regard. Coinbase also highlighted the fact that the SEC took legal action against them for activities that were already disclosed to the regulator and the public, two years after the company went public.
In response to these arguments, corporate and securities lawyer Roland Chase explained that the SEC’s role is limited to reviewing the company’s public offering documents and providing comments and questions to enhance disclosure to potential investors. The SEC does not have the authority to deny a company’s public listing based solely on its opinion of the company’s investment potential.
The SEC charged Coinbase on June 6 for allegedly offering unregistered securities since 2019. A pre-motion conference for the case is scheduled for July 13 at 2:00 pm UTC.