Coinbase Vs SEC: Exchange Gets Support From GOP Senator, Legal Scholars Through Amicus Briefs

Coinbase, the publicly listed American company operating one of the world's largest centralized cryptocurrency exchange platforms in terms of trading volume, has received support from a Republican senator and several legal scholars in its ongoing legal battle against the U.S. Securities and Exchange Commission (SEC).

A group of six legal scholars filed an amicus brief in the U.S. District Court for the Southern District of New York last week, which traces the history of the meaning of "investment contract" before, during, and after the passing into law of the Federal Securities Act of 1933.

"By 1933, the state courts had converged around a standard for interpreting the term 'investment contract' to mean a contractual arrangement that entitled an investor to a contractual share of the seller's later income, profits, or assets."

The group, consisting of scholars Stephen Bainbridge of the University of California, Los Angeles; Tamar Frankel of Boston University School of Law; Sean Griffith of Fordham University School of Law; Lawrence Hamermesh of Widener University, Delaware Law School; Matthew Henderson of the University of Chicago Law School; and Jonathan Macey from Yale Law School, also said that following the Howey decision in 1946, "common thread [for investment contracts] remains . . . that an investor must be promised, by virtue of his or her investment, an ongoing contractual interest in the income, profits, or assets of the enterprise."

On the same day, Republican Senator Cynthia Lummis of Wyoming also submitted an amicus brief supporting Coinbase, asking the court to scrap the lawsuit filed by the SEC against the exchange and claiming that the commission's enforcement actions are "out of step."

"The SEC's treating virtually all crypto assets as securities, and subjecting them to all the requirements of existing securities laws, is inconsistent with the approaches being taken in other jurisdictions. The SEC is not suited to the task of crafting a holistic regulatory framework for crypto assets, particularly through a judicial enforcement action," Sen. Lummis said.

"This Court should decline the SEC's novel effort to regulate crypto asset secondary markets on the theory that crypto assets are securities and defer to Congress to enact a proper regulatory scheme. Coinbase's motion for judgment on the pleadings should be granted," she added in the amicus brief.

James Murphy of Vanderbilt Law, who provides research, analysis and commentary on legal and business issues arising in the world of digital assets and the metaverse and uses the X handle @MetaLawMan, commented on the latest amicus brief filings.

"This Amicus Brief delivers the coup de grace to the SEC's argument that crypto tokens trading on secondary markets are investment contracts," Murphy said in reference to the brief filed by the legal scholars.

The lawyer, meanwhile, praised the "brilliant turn of phrase" in the amicus brief filed by the senator, saying that she put "a new spin on the 'regulation-by-enforcement' term" and declared that "the SEC cannot legislate by enforcement."

The SEC sued Coinbase in June and accused the exchange of selling unregistered securities.