Recently, the US Securities and Exchange Commission (SEC) and crypto exchange Coinbase had their showdown in Federal Court. And there are some major takeaways and incredible statements from the judge.
Big day that has happened recently as a lot of observers in the crypto industry were paying attention to this lawsuit. There was actually a call in number to listen to the Coinbase versus SEC lawsuit, as both parties testified before Judge Katherine Polk Faila.
Coinbase’s Arguments
Here’s what Paul Grewal, Chief Legal Officer at Coinbase, tweeted out at the conclusion of today’s hearing, “Today we made arguments in our motion to bounce the SEC lawsuit against Coinbase. After hours and hours, this much remain clear: the SEC continues to claim broad authority over all investments while offering no limiting principle to its definition of investment contract.”
He added, “The SEC cannot unilaterally expand and redefine its own regulatory ambit. This should be left up to Congress and the ongoing legislative discussions about regulatory frameworks that are currently taking place. Coinbase does not offer securities. We are confident in our legal arguments and look forward to a decision that will bring much needed clarity to the industry. We appreciate the opportunity to present our case and we thank the Court for its careful consideration.”
It is worth noting that Gary Gensler and the SEC sued Coinbase and this comes years after approving their S-1 filing to go public, understanding Coinbase’s business model and all the products and services they offered.
In the SEC’s case against Coinbase, they listed about thirteen tokens, which includes Solana, Cardano, Polygon, Filecoin, Sandbox and many others. The securities regulator is not litigating each of these tokens individually — they are trying to throw them into this lawsuit and pseudo call them as securities without giving them due process.
Read: SEC Vs. Coinbase: Analyzing The Legal Chessboard
The Lawsuit Does Not Make Sense
Gary Gensler is at work here, and most of the crypto community will think this lawsuit is pure nonsense. We have talked about it in previous articles — Gensler is going around shaking down companies, he and the SEC will ask you to come in and register, then they will stab you in the back and throw you under the bus, just like what happened to crypto exchange Kraken in the previous year.
Another example is the Debt Box situation wherein they lied during the hearing and the judge threatened a sanction against the securities agency.
Judge Sarah Netburn in the Ripple lawsuit even said that the SEC “lacked fateful allegiance to the law” and have fallen from their core mission which is to protect investors.
Read: DEBT Box Urges Judges To Toss Suit As SEC Got Case Badly Wrong
No Ruling Yet From Judge Faila
The judge presiding the lawsuit, Katherine Polk Faila, is well versed about crypto and she has seen all of these things played out. And she did make some incredible statements today.
MetaLawMan gave an update. He said, “The long awaited hearing is over. As expected, there is no ruling from the judge.”
So, the judge has not made a ruling, and we could see a conclusion by next month or three months from now. However MetaLawMan highlighted in his thread that it was an important factor that Judge Faila works in the same building with Judge Analisa Torres, she’s seen these cases, the rulings, and she understands the tech that’s positive for the crypto industry and for Coinbase.
Judge Faila: We Need To Update The Howey Test
When Judge Faila asked the SEC on why she should not listen to Senator Cynthia Lummis’ motion to dismiss the case, addressing the Howey Test, “We’ve had a good run. We’ve had 90 years where these securities laws have been able to apply to these markets. But now we have something new.”
Basically, she is saying that we need to update the Howey Test. Remember what the Ripple team and lawyers have been saying? We need a new Howie Test because you cannot apply it to blockchain networks with tokens distributed globally, and these networks are decentralized.
When the Howie test was written, they had no concept of blockchain networks and cryptocurrencies, right? This thing is complex — it is very layered, so you need to have updated rules in the year 2024. It cannot be a 1940s law.
Final Thoughts
The SEC is out of control and have fallen far from their core mission. However, there is still no guarantee that Coinbase is going to win. I do believe though that Coinbase is going to come out with the lion’s share of the victory here, and maybe the judge extends some sort of discovery. And by that time, Gary Gensler is out of office and Congress has passed crypto regulations.
But this exposes the SEC and all of their failures and much more. And it goes back to what I have been talking about in previous articles: optics and narratives, as these statements from the judge carry a lot of weight.