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Coinbase seeks an early dismissal of all five charges brought by the SEC, Binance fails to produce an accounting of its US assets, Revolut suspends crypto trading and France tightens registration rules.
In a new court filing, Coinbase is seeking to have all five charges against it dismissed, on the grounds that the Securities and Exchange Commission (SEC) has “overstepped its statutory authority”.
In June, the SEC filed a complaint against Coinbase, alleging that it has operated an unregistered securities exchange, brokerage and clearing agency for at least three years.
In addition, the SEC charged Coinbase with offering and selling unregistered securities in the form of crypto-assets and staking services.
As promised in the run-up to the complaint, Coinbase’s first response was to argue that it has never sold securities.
In a new twist on this argument, Coinbase wrote that buying a crypto-asset cannot be considered a securities sale, because the buyer has no “contractually-grounded expectation of delivery of future value”.
Additionally, to meet the standards and precedents of the Howey Test, it said a securities investment must be directed “in the business itself” rather than a “purchase of the business’s products or output”.
To argue this point, Coinbase used an analogy of a baseball card company. If one were to buy shares in the baseball card company itself, this would be a securities transaction, and would come with certain obligations for the company that issued the shares.
However, if one were to buy baseball cards produced by the company on the open market, even if the buyer hopes they “appreciate in value”, this would not be a securities transaction.
Likewise, if the baseball card company set up a platform where traders could buy and sell their cards, this would not constitute a securities exchange.
Linking this argument back to the 1946 case of SEC v Howey, Coinbase argued that a securities transaction must lead to a share in a “common enterprise” for the investor. But when purchasing crypto-assets that the SEC has deemed securities, Coinbase believes this criteria is not fulfilled.
For example, Coinbase referred to last month’s judgment in SEC v Ripple to support this argument, noting that the judge found no evidence of an “investment contract” between buyers and sellers of Ripple’s XRP token on public exchanges. The SEC plans to appeal the judgment.
Coinbase has also dismissed the SEC’s charge that its staking service is an investment contract, arguing that it “does not involve an investment of money” and is therefore not a securities offering.
“Coinbase’s staking services are not an investment because, on the facts alleged and incorporated by reference, they do not involve relinquishment of property creating a risk of loss,” it said.
Building on this argument, Coinbase said that when a customer stakes their crypto-assets through Coinbase Earn, the customer remains the owner of those crypto-assets.
Coinbase said it welcomes new rules that would benefit the crypto industry, but they must be “fair, lawful and transparent”.
“The SEC’s attack on Coinbase is none of that,” it said.
Binance misses court deadline extension
In a similar case brought by the SEC against another crypto titan, this week Binance missed a deadline to submit a verified written accounting of its US assets.
In June, as covered by VIXIO, the SEC filed a motion to freeze Binance US assets, due to their perceived risk of loss, theft or transfer during proceedings.
Ultimately, the judge denied the motion, arguing that the two parties could come to a mutual agreement on asset protection instead.
As per the agreement, Binance was asked to submit a written accounting of its US assets by or on August 1.
After the deadline passed, Binance wrote to the court to request an extension to August 7, citing difficulties with “quality control” and “accuracy”.
Once again, the deadline passed without the court receiving Binance’s submission. The case continues.
Revolut axes crypto trading due to ‘regulatory uncertainty’
Revolut has announced that US customers will no longer be able to trade crypto-assets, due to “regulatory uncertainty” stemming from multiple crypto enforcement actions.
In a statement shared with VIXIO, a Revolut spokesperson said the company took the “difficult decision” after consulting with its US banking partner.
Under plans revealed this week, Revolut US customers will no longer be able to buy crypto-assets after September 2 or sell or hold crypto-assets after October 3.
“This decision has not been taken lightly, and we understand the disappointment this may cause,” a Revolut spokesperson told VIXIO.
The spokesperson added that the suspension of crypto services in the US will affect less than 1 percent of Revolut’s crypto customers globally.
London-based Revolut launched in the UK in 2017 and in the US in March 2020. Initially, US users did not have access to crypto trading services, but this functionality was added in July 2020.
France amends registration rules ahead of MiCA
Finally, in France this week, the Financial Markets Authority (AMF) amended its General Regulation and enhanced its registration rules for digital asset service providers (DASPs).
In a statement, the AMF said that “most” of the amendments to the General Regulation are to align France’s rules with those of the EU’s Markets in Crypto-Assets (MiCA) Regulation.
The amendments will come into effect on January 1, 2024, and will apply to DASPs that received a basic licence prior to that date or an “enhanced” licence.
After that date, all DASPs must undergo an “enhanced” registration process, covering a wide range of provisions, including security and internal controls; managing conflicts of interest; custody; and terms of service.
