Digital Asset Dispute: Coinbase & SEC Lock Horns in US Court Over Crypto Securities

A federal judge in Manhattan on Wednesday grilled Coinbase, opens new tab and the U.S. securities regulator about their divergent views on whether and when digital assets are securities, in a case closely watched by the cryptocy industry.

Coinbase has asked the court to dismiss the Securities and Exchange Commission’s lawsuit alleging the largest U.S. crypto exchange is flouting its rules.

Judge Katherine Polk Failla on Wednesday heard arguments from both sides, focusing her questions on the legal precedent defining securities, and the attributes of several crypto tokens traded on Coinbase and elsewhere that the regulator has deemed investment contracts. Failla did not decide the matter from the bench, noting she was still weighing some questions after the more than four-hour hearing.

The judge’s ruling is likely to have implications for digital assets by helping to clarify the SEC’s jurisdiction over the sector. The case is one of a slew the SEC has brought against the crypto sector. The agency focused initially on companies selling digital tokens, but under the leadership of chair Gary Gensler has targeted firms offering trading platforms and clearing activity, and acting as broker-dealers.

The SEC sued Coinbase in June, saying the firm facilitated trading of at least 13 crypto tokens, including Solana, Cardano and Polygon, which it said should have been registered as securities. Coinbase, the world’s largest publicly traded cryptocy exchange, has argued that crypto assets, unlike stocks and bonds, do not meet that definition of an investment contract, a position held by the vast majority of the crypto industry.

Lawyers for the SEC argued that securities differ from purchases of collectibles like baseball cards or even Beanie Babies, referencing a 1990s trend in which Americans bought the dolls with the expectations they would rise in value.