NEW YORK - A federal judge in the Southern District of New York, Judge Katherine Polk Failla, has cast doubt on the Securities and Exchange Commission's (SEC) claim that Coinbase (NASDAQ:COIN) Global Inc. has been trading digital assets that should be registered as securities. During a pivotal hearing today, Judge Failla questioned the SEC's interaction with potential securities violators and scrutinized the suitability of the Howey test—a standard used to determine what constitutes a security—for cryptocurrencies.
The SEC's lawsuit from June 2023 accused Coinbase of offering tokens such as SOL and ADA without proper registration. However, Judge Failla referenced legal precedents, including Judge Rakoff's decision in the Terra case, emphasizing the need for clear legal guidelines and the safeguarding of retail investors' interests. Today, she also pointed out that broad security definitions might not apply neatly to digital assets and considered Senator Lummis' dismissal motion relevant, implying traditional securities laws might be outdated for cryptocurrencies.
During the hearing, Judge Failla highlighted well-crafted DeFi amicus briefs on staking mechanisms as more informative than SEC's submissions. The SEC lawyer sidestepped Bitcoin currency classification queries while asserting token ecosystems contribute to their security status; he also noted buyers' refund entitlement if tokens are classified as securities.
Coinbase's counsel disputed the notion that all traded tokens are investment contracts and highlighted gaps in allegations regarding the 13 disputed tokens. The defense was directed by Judge Failla to review decisions pertinent to investment contracts in various markets while recalling her own Uniswap ruling dismissing liability for decentralized technology platforms' customer losses.
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