Important points
- Coinbase has petitioned the Second Circuit to declare that digital token trading on its platform is not subject to federal securities laws.
- This decision could impact SEC enforcement actions and reshape the regulatory landscape for digital assets in the United States.
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Coinbase has asked the U.S. Court of Appeals for the Second Circuit to rule that digital token trading on its platform is outside the scope of federal securities laws.
The company characterized the case, reported by Bloomberg Law, as important for resolving regulatory uncertainty in the cryptocurrency industry.
“No issue in securities law today is more pressing than the scope of the Securities and Exchange Commission's authority to regulate secondary trading in digital assets,” Coinbase said in its Jan. 21 petition.
The company claims that transactions on its platform constitute asset sales, not investment contracts, and that anonymous parties exchange tokens without any obligation beyond immediate trading.
This interpretation calls into question the application of the Howie test, the 1946 standard for identifying investment contracts.
The petition follows the approval of an interlocutory appeal by the United States District Court for the Southern District of New York.
Judge Katherine Polk Feira characterized Howie's question as a “difficult question of first impression” for the Second Circuit.
The SEC filed a lawsuit in June 2023 accusing Coinbase of operating as an unregistered securities exchange, broker, and clearinghouse.
The district court initially denied Coinbase's motion to dismiss, finding the SEC's arguments “plausible,” but the judge later referred the matter to a higher court, citing “conflicting decisions on important legal issues.” .
The U.S. Chamber of Commerce and the Blockchain Association filed amicus briefs supporting Coinbase's position.
Paul Grewal, Coinbase's chief legal officer, asked the Second Circuit to provide “urgently needed guidance” on the issue.
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