Coinbase has filed an appeal against a judge's ruling that allowed the SEC's lawsuit against the company to proceed, Paul Grewal, Coinbase's chief legal officer, revealed in a post on X. The requested appeal seeks to have the Second Circuit Court review the jurisdiction of the US Securities and Exchange Commission (SEC) to classify certain crypto asset transactions as investment contracts, potentially disrupting the current process.
Coinbase's central question is whether purchases of crypto assets should be considered “investment contracts” under SEC rules, a question that has profound implications for the crypto asset industry. Coinbase is seeking a definitive answer from a higher court to resolve this uncertainty.
For nearly a century, the need for post-sale obligations has been an essential component of the definition of an investment contract as established by the Supreme Court and the Second Circuit. Contrary, the SEC proposed a new interpretation that suggests that the integration of cryptoassets into a token's ecosystem may be sufficient to configure an investment contract. “In the 90 years since the federal securities laws were enacted, neither the Supreme Court nor the Second Circuit has ever found an investment contract with no post-sale obligation. But in a series of recent enforcement actions against the crypto industry, the SEC has advanced the theory that such an obligation is not necessary,” stated Coinbase’s defense.
Today @Coinbase filed a brief asking the Court's permission to seek an interlocutory appeal in our @SECGov case on this controlling question: whether an “investment contract” requires something contractual – we think it does, the SEC disagrees. 1/5 https://t.co/M5HgMQxCLF
— paulgrewal.eth (@iampaulgrewal) April 13, 2024
The uncertainty generated by the SEC's expansive approach is a concern for policymakers, regulators, and industry participants. Coinbase argues that this uncertainty is affecting a fast-growing industry with considerable economic clout.
Finally, the company emphasizes that appeal to the Second Circuit is crucial to resolve these important legal issues. “The application of Howey to crypto-asset transactions raises difficult questions… A ‘cloud of legal uncertainty hangs over’ the crypto-asset industry… This case provides the ideal vehicle for the Second Circuit to remove it quickly and cleanly,” the defense concluded .
Recently, a US court denied an appeal by Coinbase in another case brought by the SEC, but recognized the validity of the company's arguments about its wallet product, differentiating it from the SEC's securities charges. In light of this, Paul Grewal reiterated Coinbase's commitment to continuing its legal defense.