Coinbase is leveraging the momentum following Judge Amy Berman Jackson’s decision in the case of United States Securities and Exchange Commission v. Binance. The exchange referenced her landmark ruling that secondary sales of Binance’s BNB token do not qualify as securities transactions under the criteria outlined in the Howey test.
In a formal communication, Coinbase’s legal representatives accused the SEC of arbitrary rule-making without a consistent framework. They stated that the SEC has failed to provide a coherent explanation of its regulatory processes and is attempting to retroactively enforce them on the digital asset industry through aggressive enforcement actions.
Coinbase’s Legal Move
Coinbase took legal action on June 27, filing a lawsuit against the SEC and the Federal Deposit Trust Corporation. The lawsuit alleges that both agencies colluded to exclude the crypto industry from the banking sector. Coinbase specifically argued that these federal bodies violated the Freedom of Information Act by withholding documentation related to their rule-making discussions concerning Ethereum’s transition to a staking-secured digital asset ecosystem.
Excerpt from the letter issued by Gibson, Dunn, and Crutcher LLP. Source: Court Listener
Historical Context
This isn’t the first instance where the SEC’s classification of Ethereum (ETH) has been scrutinized. Back in 2018, SEC Director of Corporation Finance William Hinman declared ETH as not meeting the definition of a security, attributing this to the decentralization of its smart contract protocol. This declaration later became pivotal in Ripple Labs’ defense against the SEC’s allegations regarding the XRP token, arguing that the SEC’s classification lacked consistent criteria for defining a “securities contract.”
Criticism of the SEC
The SEC’s handling of these matters has drawn criticism from within its ranks. SEC Commissioner Mark Uyeda characterized the agency’s approach to the crypto industry as problematic.
Legal Precedent
Judge Jackson’s ruling in SEC v. Binance echoes an earlier decision by Judge Analisa Torres in SEC v. Ripple Labs. Judge Torres determined that secondary sales of XRP did not constitute the sale of unregistered securities because XRP did not meet the SEC’s criteria for an investment contract. However, Judge Torres did find that initial sales of XRP to institutional investors were indeed securities sales, based on the manner of these transactions rather than the token’s inherent characteristics.
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