Coinbase Puts SEC on Notice: ‘Liability Shouldn’t Depend on Which Court You Get Sued In’

Coinbase has filed a notice in its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC), citing a recent court ruling in favor of Binance. 

The ruling from Judge Jackson in the SEC v. Binance Holdings Limited case late last month dismissed the SEC’s claim secondary market transactions in the BNB token on Binance’s platform were investment contracts.

In a letter to U.S. District Judge Katherine Polk Failla on Monday, lawyers representing Coinbase argued the Binance decision highlights inconsistencies in how courts apply the Howey test to crypto.

The letter argues the SEC’s stance deviates from the established Howey framework, which has traditionally guided the determination of what constitutes a security.

This conflict, Coinbase said, underscores the need for appellate review to provide clearer regulatory guidance. The SEC is pursuing legal action against Coinbase, alleging certain activity on its platform constitutes securities transactions.

Diverging court decisions highlight the regulatory challenges faced by the crypto industry as market participants and legal experts call for consistent and clear regulatory guidelines.

Binance’s ruling on June 28 followed the precedent set by Ripple last year, with Judge Jackson noting U.S. courts have reached opposing conclusions on similar digital asset transactions. 

In July 2023, a court ruled that Ripple’s XRP token was not a security when sold to the general public on exchanges, but it could be considered a security when sold to institutional investors.

Those inconsistencies, the letter states, leave market participants facing different rules depending on the jurisdiction.

“Liability shouldn’t depend on which court you get sued in or which judge is assigned to your case,” Paul Grewal, Coinbase’s chief legal officer, wrote in a Monday statement on X, formerly Twitter.

Grewal also noted the SEC’s litigation-focused approach to crypto regulation has resulted in fragmented legal standards nationwide, echoing previous sentiment from the likes of Binance and Consensys, the parent of MetaMask.

Just days before the Binance ruling, Coinbase, in collaboration with History Associates Incorporated, filed civil lawsuits against the SEC and the Federal Deposit Insurance Corporation (FDIC) for not complying with Freedom of Information Act requests. 

These requests sought disclosure of documents, including “pause letters” sent to financial institutions, which reportedly urged them to halt crypto-related activities. 

The FDIC and SEC withheld these documents, citing various exemptions, prompting Coinbase to take legal action.