Judge Roasts SEC’s Lawsuit Against Coinbase, Seeks Clarity on Securities Laws
The federal judge overseeing the high-profile lawsuit alleging U.S. crypto exchange Coinbase illegally offered securities pressed the SEC lawyers with tough questions during a Wednesday court hearing. Areas covered included defining securities, the legality of staking services, and whether the regulator is overreaching its authority.
Judge Katherine Polk Failla of the New York Southern District Court aimed repeated skepticism at the SEC’s expansive interpretation of securities laws for digital asset activities. She also invoked Congressional authority in questioning if the agency had a legal right to pursue certain claims.
- Judge Failla expressed concern over an overly broad securities designation covering assets like Beanie Babies collectibles.
- She asked why token issuers weren’t facing direct charges if the regulator considered their coins as securities.
Failla pushed back on the notion that staking customer coins constituted an investment contract or offering requiring disclosure and registration obligations. She also asked why the SEC had not targeted specific tokens’ creators if their digital assets legally constituted securities.
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The regulator’s lawsuit alleges Coinbase offered trading in up to dozens of crypto assets that qualify as unregistered securities. However, Failla noted that those assets represent “computer code” rather than traditional securities.
Judge questions SEC its definition of securities
Failla inquired with the SEC regarding their definition of securities, expressing apprehension that it might encompass a wide range of collectibles, including items like Beanie Babies. “I’ve not thought about Beanie Babies in decades, and yet it’s being presented to me in multiple briefs,” Failla said.
Failla even cited receiving an outside brief from Senator Cynthia Lummis arguing for the dismissal of the Coinbase case. However, as a judge, she expressed unwillingness to embrace an ‘activist’ court role superseding Congressional intent on securities legislation.
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Failla expressed significant uncertainty on various aspects concerning the SEC’s reasoning behind its legal actions against Coinbase’s extensive digital asset operations.
