The SEC Goes Back to Court

Last
summer,
the
U.S.
Securities
and
Exchange
Commission
(SEC)
sued
crypto
exchanges
Coinbase
and
Binance,
alleging
they
listed
and
traded
unregistered
securities
in
the
form
of
various
cryptocurrencies.
This
week,
the
regulator’s
legal
teams
faced
the
exchanges
in
court
as
the
companies
argued
the
SEC
did
not
make
the
case
that
those
cryptos
are
securities.

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There’s
no
rest
for
the
weary:
While
the
story
last
week
was
about
whether
or
not
the
SEC
would
approve
spot
bitcoin
exchange-traded
funds
(ETFs)
and
the
rough
sequence
of
events
that
occurred
before
the
approval
was
final,
this
week
found
us
back
in
court
as
the
regulator’s
Enforcement
Division
argued
that
it
has
a
case
to
make
about
cryptos
being
securities.

A
hefty
chunk
of
the
U.S.
crypto
industry
may
well
hinge
on
how
the
SEC’s
cases
against
Coinbase,
Binance/Binance.US
and
Kraken
play
out.
If
federal
judges
agree
that
various
digital
assets
are
securities,
and
the
SEC
has
the
latitude
to
say
which
are,
that’ll
impose
new
registration
and
reporting
requirements
on
issuers
and
trading
platforms.
If,
instead,
judges
find
consensus
in
saying
that
the
SEC
has
overreached
or
that
Congress
should
create
some
tailored
laws,
that’ll
give
a
green
light
to
a
huge
chunk
of
the
industry.

In
June
2023,
the
SEC
sued
Coinbase
and
Binance,
alleging
the
companies
listed
digital
assets
like
solana
(SOL),
filecoin
(FIL)
and
axie
infinity
(AXS),
among
others,
but
that
these
assets
were
really
unregistered
securities.

The
industry
–
naturally
–
was
pretty
upset
about
these
suits,
despite
SEC
Chair
Gary
Gensler
telegraphing
for
quite
a
while
that
these
suits
would
happen.
Over
the
course
of
the
last
few
months,
we’ve
seen
lawmakers,
industry
lobbyists
and
others
file
amicus
briefs
urging
the
courts
to
agree
with
the
defendants’
motions
to
dismiss
the
cases
entirely.

Jesse
Hamilton

previewed
Wednesday’s
Coinbase
hearing
here,
and
a
lot
of
the
core
ideas
are
functionally
identical
to
the
Binance
case.
The
entire
article
is
worth
your
attention
of
course,
but
one
of
his
most
important
points
may
be
that
a
dismissal
at
this
stage
is
unlikely.

Judge
Katherine
Polk
Failla

asked
a
number
of
tough
questions
during
the
hearing,
but
hasn’t
made
a
ruling
just
yet.

An
SEC
attorney
said

the
token
itself
was
not
a
security,
but
rather
the
actual
transactions
involved
during
the
hearing.

A
Friday
hearing
for
the
SEC’s
case
against
Binance
was
pushed
to
Monday
due
to
snow
in
the
Washington,
D.C.
area.

A
separate
hearing
of
interest
occurred
before
the
U.S.
Supreme
Court,
where
two
parties
are
challenging
a
longstanding
Supreme
Court
precedent
known
as
the
Chevron
doctrine,
which
gives
federal
regulatory
agencies
latitude
to
interpret
federal
laws
for
rulemaking
purposes.

This
precedent
may
be
overturned,
SCOTUSblog
reported
after
the
hearing.

Michael
Passalacqua,
an
associate
with
Willkie
Farr
&
Gallagher
LLP,
said
the
case
is
worth
watching,
as
regulatory
agencies
“would
be
less
inclined
to
discover
new
meanings
within
ambiguous
(and
often
dated)
statutes.”

“We
may
even
see
crypto
legislation
gain
momentum
again
in
Congress
as
Congress
may
be
incentivized
to
pass
new
laws
to
regulate
the
industry
(as
opposed
to
deferring
to
agency
interpretations),”
he
said.

If
you’ve
got
thoughts
or
questions
on
what
I
should
discuss
next
week
or
any
other
feedback
you’d
like
to
share,
feel
free
to
email
me
at

nik@coindesk.com
or
find
me
on
Twitter

@nikhileshde.

You
can
also
join
the
group
conversation
on

Telegram.

See
ya’ll
next
week!