In the recent legal battle between Coinbase and the United States Securities and Exchange Commission (SEC), Coinbase made a clear demarcation from the SEC, arguing that the latter was wrongly applying the Howey test in recognizing investment contracts.
On May 24, Coinbase filed a memorandum with the Court of Appeal supporting its interlocutory appeal. In legal terms, an interlocutory appeal is a kind of appeal where a party seeks to appeal from a specific judgment made in the course of a trial.
The dispute began with an earlier judgment on March 27, whereby the SEC accused Coinbase of engaging in an unauthorized securities sale through its staking service. Coinbase filed the appeal on April 12, challenging this decision and stating the key concern with an investment contract: whether it entails a contractual obligation. The SEC responded that no court had mandated a contractual obligation after sales for the Howey test to be applicable.
Coinbase countered that no appellate court in the 78 years since the Supreme Court’s Howey decision has found an investment contract without a post-sale contractual undertaking.
Furthermore, Coinbase stated that the lack of a clear structure is one of the critical issues in the US market, and proved the SEC’s arbitrary nature indicating the case of Ripple.
The case of Coinbase vs. the SEC is quite revealing of how legal action complicates the regulatory issues involved in cryptocurrencies. Criticisms of interpretations of investment contract definitions, specifically in relation to the Howey test, can possibly have major consequences for the cryptocurrency market.
As the two parties offer their evidence and look forward to a judicial decision, the impact determined in this case will most probably set a precedent regarding issues of regulation and jurisdiction in the United States.
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