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April 14, 2024

Coinbase Seeking To File Interlocutory Appeal in SEC Lawsuit on ‘Investment Contract’ Definition

By Mehron Rokhy

Top US crypto exchange Coinbase is looking to file an interlocutory appeal in its lawsuit with the U.S. Securities and Exchange Commission (SEC) regarding the definition of an “investment contract.”

In a new thread, Coinbase chief legal officer Paul Grewal says that the crypto exchange is filing an interlocutory appeal because they and the SEC disagree on the definition of “investment contract.”

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“Today Coinbase filed a brief asking the Court’s permission to seek an interlocutory appeal in our SEC case on this controlling question: whether an “investment contract” requires something contractual – we think it does, the SEC disagrees.”

An interlocutory appeal is when an appellate court is asked to settle a disagreement crucial to the case that cannot be resolved solely based on the facts of the case alone.

According to the court filings, Coinbase argues that trading digital assets doesn’t qualify as an “investment contract” under the Howey Test, an assessment created by the Supreme Court more than 90 years ago to determine whether assets count as securities or not.

“[Coinbase] moved to dismiss the SEC’s Exchange Act claims on the ground that transactions in the tokens the SEC identified were not ‘investment contracts’ and therefore not securities – as a matter of law – under Howey.

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Specifically, Coinbase explained that, for over eight decades, transactions held to be ‘investment contracts’ have been founded on a contractual undertaking beyond the point of sale (hence ‘contract’) involving a financial stake in a business (hence the ‘security’ character of the ‘investment’).”

Coinbase also notes that the SEC allowed the exchange to go public in 2021 with the same business it has today, but then turned around two years later with a lawsuit saying that the company needed to be registered under securities laws.

Says Grewal,

“It goes without saying, but I’ll say it anyway: digital assets aren’t going anywhere. And Coinbase will continue to push for clarity for the entire industry and the 52 million Americans who own digital assets. In the meantime, we’re business as usual.”

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