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Coinbase Suffers Brutal Blow As U.S. State Regulators Back SEC In Unregistered Securities Lawsuit

Coinbase’s legal brawl with the U.S. Securities and Exchange Commission (SEC) hit a new hurdle Tuesday after an association of North America’s federal securities regulators took a swipe at arguments made by the top American crypto exchange in its defense against the SEC.

The U.S. SEC has moved to strengthen its arguments in the Coinbase lawsuit.

The North American Securities Administrators Association (NASAA), a body representing state and provincial securities regulators in the US, Canada, and Mexico, has filed a new amicus brief, arguing that it has a vested interest in the outcome of the suit.

In the brief, the NASAA argued that digital assets should not be considered special and that the SEC can pursue crypto under the longstanding securities laws.

The SEC charged Coinbase in June with illegally offering securities on its platform and providing a brokerage and clearing agency service without registering with the American regulator. The SEC further contended that at least nine tokens listed on Coinbase were unlicensed securities. In response, Coinbase argued that the SEC is exceeding its power and that the crypto services it offered its customers did not qualify as securities. 

But, NASAA’s general counsel Vincente Martinez asserted that the SEC’s enforcement action should not be considered “novel or extraordinary.”

“The SEC’s theory, in this case, is consistent with the agency’s longstanding public position” and “well within the bounds of established law,” the filing said.

The NASAA’s brief also took aim at Coinbase’s attempt to narrow the definition of a security. It claims that the decades-old legal doctrine known as the Howey test, which is used to determine what qualifies as an investment contract, is sufficient.

“The Court should decline to rewrite the Howey test to allow digital asset enterprises to evade regulatory oversight,” said the brief.

More Amicus Briefs Supporting SEC

Besides the NASAA, two academic administrative lawyers, namely Todd Phillips and Beau Baumann, also filed amicus curiae briefs in support of Wall Street’s top cop to deny Coinbase’s motion for judgment on the pleadings.

These pro-SEC filings were bolstered by the New Finance Institute (NFI), which argued that neither “investing” nor “contract” are prerequisites to determining an investment contract. NFI further claims that the SEC has the full authority to regulate cryptocurrencies and urges the court to dismiss Coinbase’s arguments.

In August, Coinbase filed its motion to have the SEC case thrown out. The government agency filed a 40-page opposition motion on October 3, requesting that the court deny Coinbase’s motion “in its entirety.”

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