Court should deny Coinbase's appeal, SEC says

The Securities and Exchange Commission says Coinbase' move to appeal its case with the regulator should be denied.  

Last month, Coinbase filed an interlocutory appeal following a judge's decision to allow a lawsuit involving the SEC and the platform to proceed without being dismissed. In the appeal, Coinbase claimed differences of opinion around the Howey Test, a 1946 U.S. Supreme Court case frequently cited by the SEC, to determine if an asset qualifies as an investment contract and, therefore, a security. 

The SEC pushed back on Friday and said there was "no substantial ground for difference of opinion." 

"More broadly, it is clear that Coinbase does not like Howey and the current framework for securities regulation, having decided to arrange its business affairs in ways that may make it costly to comply with existing law," the SEC also said in its filing. "But Coinbase’s decision to do so, and its desire to rewrite settled, decades old legal precedent to fit its own policy goals and business needs provides no compelling reason to prematurely certify an appeal in this case." 

It is unlikely that an interlocutory appeal, which is filed before the end of a proceeding, will be approved. The SEC tried to file an interlocutory appeal in its case against Ripple last year but was ultimately rejected. 

Judge says case can move forward

In the decision to proceed with the case, Judge Katherine Polk Failla of New York disagreed with Coinbase's point that investment contracts need a formal contract. When a customer buys a token on Coinbase, she is not just buying a token, but she is buying into that "token's digital ecosystem," Failla said. 

For Coinbase's appeal to go forward, Judge Failla would have to grant them permission to appeal. Should the appeal be allowed to proceed, the remainder of the case would be put on hold in the trial court. The exchange would then await a resolution from the U.S. Court of Appeals for the Second Circuit. 

If and only when the Second Circuit rules on the case, it would then be returned to the trial court with guidance from the Second Circuit on this specific question. At that point, the court would proceed with whatever remained of the case. 

Coinbase was sued by the SEC last year for allegedly operating as an unregistered exchange, broker and clearing agency. The regulator also took issue with Coinbase's staking and wallet services. Judge Failla sided with Coinbase on the wallet part and dismissed the SEC's claim.