Coinbase Seeks Dismissal of SEC Lawsuit Citing Hinman Documents

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The Securities and Exchange Commission (SEC) recently filed a lawsuit against the well-known cryptocurrency exchange Coinbase for allowing users to trade securities without registration. The SEC claims Coinbase acted as an exchange, broker, and clearing agent without obtaining the required registration for each role.

In response to the SEC’s charges, Coinbase filed a motion to dismiss the case.

Coinbase’s Response to the SEC Lawsuit

Coinbase has acknowledged that it is not registered as a clearing agency, national securities exchange or broker with the SEC. However, the company denies that the assets they have made available for trading are crypto asset securities. Furthermore, Coinbase rejects the SEC’s authority over investors and the requirement of segregating functions.

Paul Grewal, Coinbase’s Chief Legal Officer, expressed the company’s willingness to engage in dialogue with any financial regulatory authority and emphasized the need for new legislation and rulemaking. Despite this, Coinbase maintains that the SEC’s lawsuit exceeds the scope of existing law and believes it will eventually be dismissed.

Attorney John Deaton on Coinbase’s Motion and Crypto Market Regulation

Attorney John Deaton, who represents XRP Holders in the SEC vs. Ripple case, believes Coinbase’s motion in response to the SEC lawsuit is strong and predicts it will be granted. He notes Congress’ recent initiation of legislation to establish clear rules in the cryptocurrency market.

Deaton further argues that Coinbase’s motion highlights a significant regulatory hole and the confusion stemming from the lack of specific rules for crypto assets. He references SEC Chair Gary Gensler’s Hinman Ethereum speech acknowledging the absence of crypto market-specific rules. According to Deaton, in legal history there has never been a case in which the sale of an investment contract on the secondary market was considered an investment contract itself.

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