-
Coinbase
is
poised
to
argue
with
the
Securities
and
Exchange
Commission
over
whether
its
business
model
is
violating
U.S.
law. -
A
federal
judge
in
New
York
will
hear
a
lengthy
four
hours
of
oral
arguments
in
the
case,
and
the
crypto
industry
will
see
whether
her
eventual
decision
about
throwing
out
the
SEC’s
case
will
help
or
hurt
its
momentum
against
the
regulator.
Coinbase
is
about
to
make
its
case
in
a
federal
courtroom
that
the
U.S.
Securities
and
Exchange
Commission
(SEC)
is
wrong
about
its
legal
arguments
that
the
crypto
exchange
has
been
trading
unregistered
securities.
What
the
New
York
judge
does
next
could
have
serious
consequences
for
the
wider
industry’s
clashes
with
the
regulator.
The
company
has
asked
Judge
Katherine
Polk
Failla
of
the
U.S.
District
Court
for
the
Southern
District
of
New
York
to
throw
out
the
case
–
a
longshot
request,
but
one
that
she
may
be
taking
very
seriously.
She’s
booked
four
hours
of
back-and-forth
with
Coinbase
and
the
SEC
on
Wednesday
–
an
unusual
depth
of
oral
arguments
for
such
a
motion,
which
often
tends
to
favor
the
government
side
in
this
kind
of
enforcement
case.
“When
the
government
is
suing
people
they
usually
don’t
lose
on
summary
judgment
motions,”
said
Patrick
McCarty,
a
financial
consultant
and
former
SEC
lawyer
who
teaches
crypto
classes
at
Georgetown
Law.
“But
it’s
possible
–
very
possible.”
Judge
Failla
could
give
significant
momentum
to
either
side
when
she
rules
on
the
motion
–
probably
not
this
week,
but
within
the
next
couple
of
months.
She’ll
either
land
in
the
camp
of
fellow
SDNY
Judge
Analisa
Torres,
who
ruled
–
also
in
summary
judgment
–
that
the
SEC
strayed
in
some
of
its
claims
about
XRP
being
a
security
in
the
case
against
Ripple,
or
Judge
Jed
Rakoff,
who
just
gave
the
SEC
a
win
in
its
action
against
Terraform
Labs.
The
SEC
interprets
the
key
law
on
identifying
securities
–
known
as
the
Howey
test
–
as
saying
that
a
digital
asset
purchaser
who
has
been
guided
to
expect
profit
from
that
purchase
is
likely
buying
a
crypto
security.
But
Coinbase
contends
that
the
tokens
being
traded
on
its
popular
platform
aren’t
securities
if
there’s
no
formal
obligation
that
says
the
issuer
owes
the
purchaser
a
share
of
profits
or
income.
The
case
could
be
thought
of
as
the
first
major
action
that
“brings
into
focus
this
debate
about
whether
–
in
fact
–
these
things
are
investments
contracts
or
securities
transactions
under
the
Howey
test,”
McCarty
said.
He
said
this
current
motion
puts
Failla
in
an
interesting
position,
“kind
of
caught
between
Judge
Torres
and
Judge
Rakoff,”
both
judges
in
the
same
court
that
handles
so
much
of
the
SEC’s
caseload.
Each
side
will
have
two
hours
to
make
its
case
directly
to
Failla,
which
McCarty
noted
was
an
especially
long
time.
If
the
judge
isn’t
convinced
that
Coinbase
has
justified
an
early
resolution
in
the
company’s
favor,
the
dispute
will
proceed
toward
trial,
in
which
case
the
company
could
pursue
SEC
internal
documents
revealing
conversations
among
officials
as
they
decided
whether
to
go
after
the
exchange.
The
agency
and
the
company
aren’t
generally
arguing
over
the
facts
of
what’s
happening,
but
on
how
existing
law
should
treat
it.
Deciding
where
Howey
fits
in
is
“going
to
contribute
to
the
continuing
development
of
legal
precedent,”
said
Chris
Odinet,
a
professor
at
the
University
of
Iowa
College
of
Law
whose
research
has
a
focus
on
digital
assets.
“The
stakes
are
extremely
high,
because
they’re
so
inherently
tied
to
the
business
model,”
Odinet
said.
However,
he
doesn’t
necessarily
interpret
the
lengthy
four
hours
of
scheduled
discussion
as
a
sign
pointing
in
either
direction,
because
he
said
the
issues
are
highly
technical
and
may
require
that
much
questioning.
But
whatever
happens
on
this
motion,
the
dispute
over
crypto
transactions
in
the
secondary
market
will
almost
certainly
be
elevated
to
the
appeals
courts.
“It’s
not
like
this
is
going
to
end
the
debate,”
McCarthy
said.
“It’s
just
going
to
be
another
chapter.”
Coinbase’s
arguments
this
week
also
come
on
the
heels
of
the
SEC’s
capitulation
in
the
spot
bitcoin
exchange-traded
fund
(ETF)
approvals,
which
agency
Chair
Gary
Gensler
granted
came
out
of
the
SEC’s
court
loss
against
Grayscale.
While
that
was
a
different
legal
question,
the
regulator
was
declared
by
a
federal
court
to
be
taking
“arbitrary
and
capricious”
actions
against
a
crypto
firm,
and
Coinbase
is
prepared
to
make
a
similar
claim
here.
The
judge
has
previously
differed
with
SEC
leaders
in
at
least
one
significant
crypto
point:
She
said
last
year
that
ether
(ETH)
is
a
commodity,
not
a
security.
While
SEC
officials
once
suggested
that
may
be
the
case,
they’ve
more
recently
narrowed
their
position
to
bitcoin
(BTC)
being
the
only
token
that’s
definitely
outside
SEC
jurisdiction.