According to a letter sent by the SEC on July 7 to a district judge, Coinbase had knowledge of the probability that federal securities laws would apply to its operations, openly informing its shareholders about the possibility of assets traded on its platform being classified as securities.
"Since becoming a public company, Coinbase has repeatedly informed its shareholders of the risk that the crypto assets traded on its platform could be deemed securities and therefore that its conduct could violate the federal securities laws," reads the regulator's response.
As per the SEC, Coinbase is a "multi-billion-dollar entity advised by sophisticated legal counsel" that is deliberately "ignoring more than 75 years of controlling law under Howey" in an attempt "to construct its own test for what constitutes an investment contract."
Screenshot of the SEC’s response to the court on July 7. Source: CourtListener
The letter is a response to a previous filing from Coinbase. On June 28, the exchange notified the court about its intention to file a motion for judgment. According to Cornell University, a motion for judgment is used if a party believes that there is no real dispute about material facts in a case.
In this previous letter, Coinbase brought up an appearance of the SEC chair Gary Gensler before the Congress, when he allegedly claimed 'there is not a market regulator around these crypto exchanges' and 'only Congress' could confer authority to regulate crypto exchanges." Coinbase also pointed out that two years after going public, the SEC filed charges for activities "exhaustively described" to the regulator and to the general public.
Speaking with Cointelegraph, corporate and securities lawyer Roland Chase explained that "all that the SEC is authorized to do by Congress is to review the going public documents and provide comments and ask questions in an effort to improve the company’s disclosure to potential investors," adding that federal securities laws governing the “going public” process are disclosure-based. "That means that the SEC does not, and in fact cannot, deny a company’s public listing merely because it thinks investing in that company is a bad idea," he said.
The securities' regulator charged Coinbase on June 6 for allegedly offering unregistered securities since 2019. A pre-motion conference on the case is scheduled to July 13 at 2:00 pm UTC.
The United States Securities and Exchange Commission (SEC) filed a response to Coinbase's claims that the regulator lacks jurisdiction to prosecute the crypto exchange.