(CTN News) – A federal judge pressed the Commission about the details of its lawsuit against Coinbase, asking what specific characteristics of a crypto token constitute an investment contract.
According to CNN, Coinbase, the world’s largest publicly traded cryptocurrency exchange, has asked Judge Katherine Polk Failla to dismiss the suit because crypto assets, unlike stocks and bonds, are not subject to oversight by the U.S.
SEC, or the Securities and Exchange Commission. In addition to the firm, other crypto companies also believe that the SEC has overstepped its authority with its actions.
As the SEC announced in June, Coinbase was being sued over its facilitation of trades for at least 13 crypto tokens, such as Solana, Cardano and Polygon, that were required to be registered as securities. It was also stated that Coinbase operated illegally as a national securities exchange, broker and clearing agency without registering with the Securities and Exchange Commission (SEC).
During a hearing in a Manhattan court on Coinbase’s motion to dismiss the case,
Failla questioned SEC attorneys about which attributes of the 13 tokens at issue made them securities in the eyes of the regulator, according to the opinion of the court.
There is a concern on my part regarding what you are requesting, and that is to broaden the definition of what constitutes a security, which is what you are doing,” the judge explained.
A SEC assistant chief litigation counsel, Patrick Costello, argued that the crypto tokens at the core of the case act as a backstop to a larger “enterprise,” or blockchain network, making them the equivalent of investment contracts.
There is a direct relationship between the value of the network or ecosystem and the value of the [associated] token, he said.
It is expected that the hearing will have implications for digital assets as it could clarify the SEC’s jurisdiction over the sector as it is the next major development in an ongoing court battle between Coinbase and the Securities and Exchange Commission.
The SEC is also targeting Coinbase’s “staking” program in its lawsuit, in which it pools assets to verify activity on blockchain networks and takes commissions, as well as providing “rewards” to Coinbase’s customers in exchange for its services. As a result, it was stated that the agency should have registered the program with it.