Coinbase files brief in SEC Wahi case, says it doesn’t sell securities, but would like to

Cryptocurrency exchange Coinbase filed an amicus brief in support of a motion to dismiss the case brought by the United States Securities and Exchange Commission (SEC) against former Coinbase product manager Ishan Wahi and other for insider trading. Coinbase condemns the defendants conduct, it said in the brief, but supports the defendants’ motion because of the SEC’s assumption that the exchange listed securities on its platform.

Coinbase stated in its amicus (“friend of the court”) brief that it had fully cooperated with the investigation of Wahi, his brother and their friend and it implied that it was under judgment in the case as well:

“The SEC asks this Court to adjudicate issues at the heart of Coinbase’s listing decisions […] in litigation against unsympathetic individual defendants who stole Coinbase’s nonpublic information.”

The exchange denied selling securities, but stated that it would like to sell digital asset securities, were it not for the “state of uncertainty” in regulation:

“Coinbase would like to expand its platform to include digital-asset securities (such as tokenized stocks), but no U.S. company can do so until the SEC provides a clear regulatory framework.”

It also noted that the Justice Department did not press securities law charges against the defendants in its case. Ishan Wahi pleaded guilty in that case, and his brother also pleaded guilty.

Arguing that it does not sell securities, Coinbase said the SEC approved its public share listing in 2021 without saying the exchange’s business model could allow the sale of securities or that it sold securities. Further, Coinbase argued, its listing do not pass the often-cited Howey test, established by the U.S. Supreme Court in 1946, as they are neither investments nor contracts under it.

Coinbase also cited the major questions doctrine, reconfirmed by the U.S. Supreme Court last year in the case of West Virginia v. EPA, which set the boundaries for agencies’ overreach. Industry advocacy groups the Digital Chamber of Commerce and Blockchain Association have made similar points in their own amicus briefs.

Last week I testified to Congress about Coinbase’s futile effort to register with the SEC so we can begin to offer digital asset securities. Today we filed an amicus brief in SEC v. Wahi that explains why this misguided suit only makes things worse. 1/5https://t.co/9iWYrWwpiI

— paulgrewal.eth (@iampaulgrewal) March 14, 2023

Finally, the brief held that the SEC’s actions violate “fundamental principles of fair notice and due process and raises serious concerns under the APA [Administrative Procedure Act]. “Coinbase seeks more engagement by the Securities and Exchange Commission with the cryptocurrency industry, not less. But that engagement must take the right form,” it concluded.