Coinbase Asks Appeals Court to Say Crypto Trades Not Securities
“There is no more pressing issue in securities law today than the scope of the Securities and Exchange Commission’s authority to regulate secondary trades of digital assets,” said its petition docketed in the US Court of Appeals for the Second Circuit on Monday. A Second Circuit ruling could “clear away the cloud that currently hangs over the cryptocurrency market,” Coinbase said.
Trades on Coinbase’s platform—the largest US crypto exchange—don’t constitute investment contracts, said the company’s brief. Rather trades are asset sales, it said. The parties are anonymous, make no promise other than the digital asset’s sale, and therefore don’t have an obligation to one another beyond that.
The US District Court for the Southern District of New York granted Coinbase’s request to seek an immediate appeal earlier this month in an SEC enforcement suit.
The US Chamber of Commerce and nonprofit Blockchain Association have filed amicus briefs in favor of the Second Circuit taking up the case. Federal courts have been divided over whether crypto trades are investment contracts, with the Chamber of Commerce saying in its brief that “the absence of certainty will continue to produce deleterious effects.”
The SEC sued Coinbase in 2023, alleging the trading platform violated federal law by selling crypto as an unregistered securities exchange, broker, and clearing agency. Coinbase argued its crypto trades weren’t investment contracts and thus their regulation didn’t fall under the SEC’s purview. US District Judge Katherine Polk Failla previously said certain transactions involving tokens qualified as investment contracts, allowing the SEC case against Coinbase to move forward.
The appeal queries how courts should apply the “Howey test” to crypto transactions, Failla had said in allowing the interlocutory appeal, “a difficult issue of first impression for the Second Circuit.” The Howey test comes from a 1946 US Supreme Court case that provided a roadmap for determining whether a transaction is an investment contract.
A Second Circuit decision finding that token trades aren’t securities transactions couldn’t only speed up terminating the SEC’s case against Coinbase, but also more broadly loosen US crypto regulation following other commission actions taken during the Biden administration.
Still, the Trump administration has indicated it’ll give crypto companies more regulatory leeway. Already, his SEC has
And the Third Circuit recently ordered the SEC to explain why it denied Coinbase’s request for rules specific to the crypto industry, saying the agency provided insufficient justification for its decision.
Sullivan & Cromwell LLP and Wachtell, Lipton, Rosen & Katz represent Coinbase in its Second Circuit bid. Neither the SEC nor Coinbase and its counsel responded to emails seeking comment.
The case is Coinbase, Inc. v. SEC, 2d Cir., No. 25-145, brief docketed 1/21/25.
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