On Wednesday, the Security and Exchange Commission (SEC) and CoinBase agreed to a court hearing. However, New York judge Katherine Polk Failla asked direct questions on security and staking, pointing out that the SEC is too broad and sweeping in collectibles. The hearing that took almost 5 hours lies in Judge Failla’s hands to determine if she will grant or dismiss the Coinbase motion.
The SEC sued CoinBase in June for operating as an unregistered exchange, broker, and agency. Despite this, CoinBase has pushed back, arguing the court should dismiss the case; moreover, they accused the regulators of taking the regulation approach by force. The SEC said that CoinBase is operating 13 cryptocurrencies as securities: SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO. The SEC emphasized that if a holder purchases a token with the expectation that it will generate gains, the tokens are securities.
Judge Failla, however, responded to the SEC agency. “I am afraid that your augment is sweeping too broadly,” added Judge Failla.
Moreover, CoinBase’s attorney, in response to the SEC, stated that, for a commodity to be termed security, there must be an investment contract, and unlike stocks and commodities, cryptocurrencies do not meet the term investment contract. “Everyone knows that investment contracts require contracts within,” added the attorney, but the SEC stated otherwise after it brought legal action against cryptocurrencies.
How do you define security?
“I have not heard of beanie babies for almost 10 years, but it is actually what is presented here,” Judge Failla said. She went ahead and asked the Security and Exchange Commission how the agency defines security. However, the SEC lawyer argued that the main subject is to make sure everyone stays in their lane.
Additionally, the SEC lawsuit targeted the staking program, saying the program is not registered under the agency. Staking constitutes rewards; the agency said that the pool authorizes activity on blockchain and gains commission in exchange for rewards. However, Judge Failla stated that she saw staking as a traditional investment.
The case will take weeks or months before the ruling on whether to grant or deny the CoinBase motion. If the case is not fully dismissed, the two parties will move on to the discovery process.