The US Securities and Exchange Commission (SEC) is facing a number of lawsuits from cryptocurrency companies that challenge its authority to regulate the digital asset industry. One of these cases involves Coinbase, the largest crypto exchange in the US, which filed a motion to dismiss the SEC’s complaint against it in August.
Coinbase argues that the SEC has no jurisdiction over its secondary market activities and that it did not receive fair notice of the SEC’s interpretation of the securities laws.
SEC Has No Plans to Dismiss Coinbase’s Complaint
However, the SEC may have a strong counterargument based on a recent ruling in another case involving Terraform Labs, a crypto mining company that also sued the SEC for alleging that its tokens were unregistered securities.
In July, a federal judge denied Terraform Labs’ motion to dismiss the case, rejecting its reliance on the “major questions doctrine”. This doctrine states that Congress does not delegate major policy decisions to administrative agencies without clear authorization.
The judge ruled that the SEC’s application of the securities laws to Terraform Labs’ tokens was not a major question, but rather a routine exercise of its statutory authority. The judge also found that Terraform Labs had sufficient notice of the SEC’s position, as the agency had issued several guidance documents and enforcement actions regarding digital assets.
In its response to Green United, a crypto mining company that filed a motion to dismiss using the same arguments as Terraform Labs and Coinbase, the SEC referred to the ruling in the Terraform Labs case. The SEC stated that this ruling gives them more authority to reject Green United’s defenses based on the major questions doctrine and fair notice.
The SEC’s reference to the Terraform Labs case may indicate how it will approach Coinbase’s motion to dismiss as well. The SEC may argue that Coinbase’s secondary market activities are not a major question, but rather a subject of its existing regulatory framework. The SEC may also contend that Coinbase had adequate notice of the SEC’s views on digital assets, as it had engaged in several discussions with the agency before launching its products.
Coinbase’s motion to dismiss is still pending before the court, and it remains to be seen how the judge will rule on it. However, the Terraform Labs case may provide some clues as to what arguments the SEC will use to defend its authority over the crypto industry.
