Coinbase Says SEC Is Attempting to ‘Redefine Definition of an Investment Contract’

Coinbase argues in a new filing that the Securities and Exchange Commission is attempting to control all investment activity and define its own regulatory ambit.

Coinbase (COIN) has filed a response to the Securities and Exchange (SEC) to get an enforcement action against the exchange dismissed, arguing that the tokens don’t necessarily represent the definition of an investment contract.

The SEC is attempting to expand its regulatory scope in a way not authorized by Congress, Coinbase argued, taking an approach that was expected by insiders.

The SEC first sued Coinbase, along with Binance, in early June. Coinbase moved to dismiss the suit in August, with the exchange’s Chief Legal Officer telling CoinDesk at the time that they hoped U.S. regulators would be forced to “establish clear rules of the road that everyone could understand and follow.”

“As the SEC now would have it, an investment contract exists if someone parts with capital and expecting that her purchase will increase in value,” Coinbase argued in the filing. “The SEC proposes this departure from precedent in the service of a radical expansion of its own authority. It claims authority over essentially all investment activity—and thus the right to define its own regulatory ambit, constrained only by its own ambition.”

Coinbase argues that assets like paintings, baseball cards, and cryptocurrencies can be investments but aren’t securities unless they offer a contractual claim related to a business’ future profits or assets, and the SEC hasn’t shown that trades on Coinbase’s platform confer such claims or a financial stake in an enterprise.

“Were the SEC’s position accepted, countless software-driven services would be securities. That would be another radical expansion of SEC authority with no grounding in precedent,” the exchange wrote in its filing.

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The SEC faces judicial challenges in its crypto industry lawsuits, with significant rulings undermining its stance that most cryptocurrencies are securities.

There’s some momentum questioning whether the “major questions doctrine” applies in preventing the SEC from regulating the evolving crypto legislative space, CoinDesk previously reported.

In the filing, Coinbase argued that the SEC’s approach oversteps its bounds and raises significant separation-of-powers concerns, especially when enforcement actions are taken without clear regulatory guidance.

“The separation-of-powers concerns animating that question are at their most acute when an agency wields enforcement power without regulatory process, under the guise of enforcing a Congressional mandate,” Coinbase wrote.