Coinbase Files Appeal Over ‘Investment Contracts’ in SEC Battle

On April 12, Coinbase’s legal counsel filed a brief asking the court’s permission to seek an interlocutory appeal in its case.

The controlling question was whether an “investment contract” requires something contractual. Coinbase believes it does, whereas the SEC disagrees.

An interlocutory appeal occurs when a ruling by a trial court is appealed while other aspects of the case are still proceeding.

Coinbase Fights Back

Coinbase chief legal officer Paul Grewal said that the SEC’s action against the company and other crypto firms “goes way beyond the legal authority granted by Congress and puts an unjust cloud over US digital asset innovation.”

The SEC sued Coinbase in June 2023, alleging that its provision of crypto asset trading constituted operating as an unregistered securities exchange and broker-dealer.

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

Coinbase moved to dismiss the alleged violations, arguing that the digital asset transactions at issue did not involve “investment contracts” under the Howey test because the SEC did not allege any post-sale obligations or contractual undertakings by the issuers.

Coinbase is now appealing, questioning whether digital asset transactions without post-sale obligations can be considered “investment contracts” and thus securities subject to SEC regulation.

Grewal added that Coinbase is not alone in its line of thinking since “The SEC itself has made the identical arguments.”

“In the Ripple case, they said specifically there is ‘controlling question[] of law to which there are substantial grounds for difference of opinion’ and noted ‘industry-wide significance’ of the question presented.”

In April, the court ruled in favor of Coinbase in a partial victory, confirming that secondary sales of crypto assets on the exchange do not violate the Securities Exchange Act.

War on Crypto Continues

The SEC’s war on crypto has not abated with the regulator issuing an intent to take legal action against the decentralized exchange Uniswap on April 10.

“Uniswap is a poster child for crypto decentralization – instead of celebrating Hayden Adams as a generational entrepreneur, they’re taking him to court,” said Ryan Sean Adams from Bankless, who added:

“A war on crypto is a war on the internet.”

In March, the SEC targeted the Ethereum Foundation with a subpoena in a probe to determine whether ETH is a security.

According to SEC chair Gary Gensler, Ethereum’s switch to proof-of-stake consensus could bring it under jurisdiction as an “investment contract.” However, he has yet to confirm one way or the other when questioned.