The SEC’s arguments against Coinbase are ‘not particularly strong,’ law expert says

The U.S. Securities and Exchange Commission (SEC) has provided a preview of the rationale it plans to use against Coinbase. letter But the SEC lawsuit against Coinbase doesn’t give much confidence, said cryptocurrency attorney James Murphy. tweeted July 9th.

Murphy, known on Twitter as MetaLawMan, said the SEC’s arguments were “not particularly strong.”

SEC case

In its letter, the regulator claimed that Coinbase, along with a series of “sophisticated” lawyers, “understand that securities laws may apply” to their business. In other words, Coinbase was fully aware that operating in compliance with the SEC may violate securities laws.

The SEC filed a letter in response to Coinbase requesting permission to file a motion for judgment on the plea on June 28. The market watchdog said it would oppose any allegations if the court allowed Coinbase to file.

Murphy explained:

“While the SEC opposes the motion, it does not intend to delay consideration of the issues raised by Coinbase.

This means that there is at least some hope for a speedy resolution of the case. “

weak argument

Murphy believes the SEC’s case against Coinbase is weak because the SEC cites the SEC v LBRY case and others in the letter.in the caseWhen the SEC won the case in November 2022, token issuer LBRY was charged with offering cryptocurrencies as unregistered securities.

In the SEC v. LBRY case, the court did not distinguish between investors who purchased cryptocurrencies directly from issuers and those who purchased cryptocurrencies on secondary trading platforms, according to the SEC letter. Regulators have used the lawsuit to back up the argument that cryptocurrency securities do not cease to be securities just because they are traded on secondary platforms like Coinbase.

However, according to Murphy, the judge in the cited lawsuit did not rule that the tokens traded on the secondary platform were securities. Accordingly, Mr. Murphy believes the lawsuit does not fully support the SEC’s allegations. he pointed out:

“The SEC is relying on a Connecticut non-applicable lawsuit brought against the issuer of the token, not against the secondary trading platform.”

Murphy added that regulators could propose “better case law” throughout the conference, but “this is not an indication of strength.”

Leading Question Principle

The “major issue doctrine” refers to the Supreme Court’s ruling that when regulators seek to decide on issues of national importance, their actions must be backed by explicit congressional approval. Coinbase’s defense uses the critical question principle to show that the SEC does not have congressional approval for its actions.

In its filing, Coinbase quoted SEC Chief Gary Gensler before Congress in 2021 to back up its claims. Gensler testified in May 2021 that the SEC does not have legal authority to regulate cryptocurrency exchanges, according to Coinbase filings. Gensler added that since exchanges do not have a regulatory framework, only Congress can address regulatory gaps.

Coinbase Chief Legal Officer Paul Grewal tweeted on July 8 that the SEC letter was “almost the same” and ignored key questions. Grewal noted that the SEC did not react to Genler’s 2021 comments, ignoring “last week’s clear and unmistakable Supreme Court warning against regulatory overreach in key issues reserved to Congress.” .

The SEC intends to attack Coinbase’s defenses under the Critical Question Principle, but the regulator is unlikely to succeed, Murphy said. he pointed out:

“In my view, it is likely that Coinbase will ultimately win the MQD lawsuit at the district court level or on appeal.”

A pre-filing conference on this lawsuit is scheduled for July 13. According to Murphy, Coinbase’s strategy to expedite litigation “seems to be working.”