Coinbase’s legal team has requested that the judge in its ongoing legal dispute with the U.S. Securities and Exchange Commission (SEC) disregard a previous judgment that classified secondary sales of crypto assets as “securities transactions.” They argue that this judgment was never thoroughly examined in court.
In a letter dated March 5, Coinbase attorney Michael Savitt urged U.S. District Judge Katherine Failla to reject the SEC’s classification of crypto sales on a secondary market as securities contracts in the SEC vs Wahi case. Savitt claims that this judgment should carry no weight.
The SEC had filed a lawsuit in July 2022 against former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi, and their friend Sameer Ramani for insider trading involving nine cryptocurrencies. The Wahi defendants moved to dismiss the case, arguing that the tokens were not “investment contracts” and therefore outside the jurisdiction of the SEC. Coinbase and others filed briefs supporting this motion.
However, before the motion could be decided, the SEC reached a settlement with the Wahi brothers in June 2023, in which they neither admitted nor denied the allegations. The SEC later obtained a default judgment against Ramani, who did not appear in court. This judgment accepted the SEC’s claim that the crypto assets were “investment contracts,” a position that the SEC itself rejected in the Coinbase case.
Savitt argues that the court judgment against Ramani should carry no weight, as the crucial issues were never fully debated or examined in court.
This move by Coinbase’s legal team is in response to an SEC notice on March 4 that aimed to undermine Coinbase’s case by informing the judge that the Wahi insider trading case was relevant because the tokens had been classified as securities by the court at the time.
In January, Coinbase and the SEC debated whether crypto assets traded on Coinbase’s platform met the Howey test for being securities. Following the hearing, Bloomberg senior litigation analyst Elliott Stein predicted a 70% chance of Coinbase securing a full dismissal in the lawsuit.
The SEC filed a lawsuit against Coinbase in June 2023, alleging that the cryptocurrency exchange had violated federal securities laws by listing 13 tokens that were considered “securities.” Coinbase is seeking an order to dismiss the case, questioning the SEC’s authority over crypto exchanges.