SEC: Coinbase was aware it was violating U.S. securities laws

The U.S. Securities and Exchange Commission (SEC) has published a response to a recent filing by Coinbase, claiming that the exchange made a ‘calculated decision’ to operate as an unregistered securities broker. The company filed a motion to dismiss the SEC’s charges back in June.

The agency initiated a full legal operation against two giants of the crypto industry in early June when it filed consecutive lawsuits against Binance (and its U.S. subsidiary) as well as Coinbase. The latter quickly responded by filing a motion to dismiss all charges just a few weeks after the lawsuit.

In it, Coinbase argued that the SEC had already given the green light to the company’s business model back in 2021 when it allowed Coinbase to become a publicly traded company.

The company has repeatedly reiterated its attempts to open positive regulatory dialogues with U.S. regulators, but so far without success. It even requested the SEC to provide more clarity on its regulatory policies regarding cryptocurrencies, but the agency has yet to respond.

However, the SEC responded to Coinbase’s motion to dismiss the charges on Friday, July 7. The filing states that Coinbase’s own actions falsely represent the argument that the company was unaware that it was risking a violation of federal securities laws.

The Commission further claims that the exchange warned its shareholders ‘multiple times’ since being listed on Nasdaq about the risk that the crypto assets traded on its platform could be considered securities and therefore its conduct could violate federal securities laws, including in the very registration statement it now points to as evidence that the SEC allegedly blessed its business model.

The filing also states that Coinbase chose to ignore over 75 years of law under the Howey test, and in its motion to dismiss the charges, it presented two ‘incorrect arguments’.

– An investment contract must either include a formal contract under common law, or (2) even if the crypto asset is considered an investment contract when first offered and sold by the issuer, that same asset cannot be an investment contract when traded between non-issuers on a platform like Coinbase’s because transactions on the secondary market that do not involve the issuer are merely ‘sales of assets’. Both arguments are incorrect – wrote the SEC.