Coinbase Appeals for Interlocutory Review of Investment Contracts Ruling in Ongoing SEC Dispute

Eleanor Terrett, a well-known FOX Business journalist, has just announced on Twitter that Coinbase has officially requested Judge Failla’s permission to pursue an interlocutory appeal regarding a ruling on investment contracts. This request comes at a time when the interpretation of the Howey Test for cryptocurrencies has become a contentious issue.

In a recent denial of Coinbase’s motion to dismiss the SEC’s lawsuit, Judge Failla referred to Judge Rakoff’s opinion from the Terra case. This opinion suggested that certain digital assets could be considered investment contracts under the Howey Test.

Coinbase is now challenging the application of this test to digital assets, highlighting the divergence of judicial opinions as a crucial point of law that warrants an interlocutory appeal.

Terrett explained that obtaining such appeals before a final judgment has historically been difficult, as seen in the SEC’s unsuccessful attempt last July to overturn Judge Torres’s decision in the Ripple case regarding secondary market token sales.

Coinbase aims to address a specific legal disagreement by seeking a review of the SEC’s view on digital assets by the U.S. Court of Appeals for the Second Circuit, independent of the ongoing lawsuit.

The appeal argues that the Howey Test poses significant challenges, as demonstrated by the differing responses from various judicial, legislative, and regulatory bodies.

Specifically, the appeal focuses on whether a transaction involving crypto tokens should be classified as an investment contract when there is no legal obligation from the token’s issuer. Such classifications are crucial in determining whether these transactions require registration under securities laws.

Coinbase asserts that once a digital asset is traded on secondary markets, detached from its initial business context, it should no longer fall within the SEC’s regulatory purview.

The legal battle now centers around Judge Katherine Polk Failla’s recent ruling, which favored the SEC’s position and allowed the lawsuit to proceed on most counts.

This decision from the U.S. District Court for the Southern District of New York underscores the importance of the legal questions at hand, particularly regarding the application of securities laws to cryptocurrencies.