Coinbase Appeals SEC Ruling on Investment Contracts, Adding a Twist to Coinbase vs SEC Case
Coinbase Appeals Court Ruling on Howey Test Application to Cryptocurrencies
Coinbase, the popular cryptocurrency exchange, is appealing a court ruling in order to seek clarification on how the Howey Test applies to cryptocurrencies. The ruling, which allowed a lawsuit against Coinbase to proceed, has sparked a debate on the regulation of cryptocurrencies.
Eleanor Terrett, a well-known FOX Business journalist, recently announced on Twitter that Coinbase has officially requested permission from Judge Failla to seek an interlocutory appeal regarding a ruling on investment contracts. This move comes at a time when the interpretation of the Howey Test on cryptocurrencies has become a contentious issue.
Judge Failla had previously dismissed Coinbase’s motion to drop the SEC’s lawsuit against them. In her denial, she referenced Judge Rakoff’s opinion from the Terra case, which suggested that certain digital assets could be considered investment contracts under the Howey Test. Now, Coinbase is challenging the application of this test to digital assets, highlighting the diverging opinions among judges as a crucial point of law that warrants an interlocutory appeal.
Securing such appeals before a final judgment has historically been difficult, as demonstrated by the SEC’s unsuccessful attempt last year to overturn Judge Torres’s decision in the Ripple case. However, Coinbase is determined to address the legal disagreement by asking the U.S. Court of Appeals for the Second Circuit to independently review the SEC’s view of digital assets apart from the ongoing lawsuit.
The appeal argues that the Howey test poses significant challenges, as different judicial, legislative, and regulatory bodies have provided varied responses to its application. Specifically, Coinbase questions 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 need to be registered under securities laws.
Coinbase firmly asserts that once a digital asset moves into secondary markets and is separated from its initial business context, it should no longer be subject to the SEC’s regulatory oversight.
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 ruling underscores the significance of the legal questions surrounding the application of securities laws to cryptocurrencies.