A well-known cryptocurrency exchange called Coinbase has gone to court by making a motion in federal court. They want to get permission to file an interlocutory appeal against a recent decision about investment contracts.
The main question of the appeal is whether deals involving digital assets that don’t owe anything to the original issuer should be considered investment contracts that are regulated by the U.S. Securities and Exchange Commission (SEC).
This comes after Judge Katherine Failla turned down Coinbase’s request to throw out the SEC’s case in March. She did this by citing a case involving Terra, a now-defunct crypto company, as an example of how the Howey Test could be used to show that some digital assets could be considered investment contracts, especially in the context of a larger ecosystem.
Coinbase Seeks Legal Clarification
The Howey test is a well-known legal measure that is used to see if certain deals are actually investment contracts. Coinbase says that its use with digital assets is a very important legal question, made more difficult by differing court views. The company says that this difference meets the requirements for a significant question of law, which is needed to start an interlocutory appeal.
It can be hard to get an interlocutory appeal heard before a final decision is made, especially in cases like this one. But if it is allowed, it could have big effects. When the SEC tried to do the same thing in the Ripple case last July, they ran into problems when they fought a decision by Judge Analisa Torres about selling tokens on secondary markets. But if they are allowed, these appeals could bring the business closer to important clarifications from higher courts, maybe even the U.S. Supreme Court.
In a social media post, Coinbase’s Chief Legal Officer, Paul Grewal, emphasized the main point of the matter: whether an investment contract requires ongoing contractual responsibilities after the sale. While Coinbase supports this point of view, the SEC takes a different one.
How this legal conflict is settled is important for the U.S. cryptocurrency market. Since the SEC considers crypto transactions to be investment contracts, they are subject to regulatory control and must be registered. Still, companies like Coinbase say that the SEC shouldn’t be able to regulate digital assets once they move to secondary markets and are no longer linked to their original producers.
