March 27, 2024
Coinbase Challenges SEC's 'Empty Chair' Securities Judgment
Latest Cryptocurrency News

Coinbase Challenges SEC’s ‘Empty Chair’ Securities Judgment

Coinbase’s legal battle with the U.S. Securities and Exchange Commission (SEC) has taken a contentious turn as the cryptocurrency exchange’s lawyers request the dismissal of a previous judgment that categorized secondary sales of crypto assets as “securities transactions.” Coinbase attorney Michael Savitt penned a letter on March 5 to U.S. District Judge Katherine Failla, urging her to disregard the SEC’s classification in the SEC vs Wahi case, emphasizing that the judgment should carry “no weight.”

The legal dispute originated in July 2022 when the SEC sued former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi, and their friend Sameer Ramani for alleged insider trading involving nine cryptocurrencies. The Wahi defendants sought to dismiss the case, contending that the tokens did not qualify as “investment contracts” and thus fell outside the SEC’s jurisdiction. Coinbase and other entities supported this motion.

Before a decision on the dismissal motion could be reached, the SEC settled with the Wahi brothers in June 2023, employing a “zero-dollar, no-admit-no-deny” settlement. Subsequently, the SEC secured an unopposed default judgment against Ramani, asserting that the crypto assets constituted “investment contracts” – a stance the SEC itself had rejected in the Coinbase case.

“The Wahi order was procured against an empty chair and its reasoning reflects as much. Coinbase respectfully submits that the default judgment against Mr. Ramani should be afforded no weight.”

Savitt argued that the judgment against Ramani, who did not participate in the case, should be given little importance since the crucial issues were never fully deliberated or examined in court. This response comes after the SEC’s notice on March 4, attempting to undermine Coinbase’s case by informing the judge that the Wahi insider trading case was pertinent due to the court’s prior classification of the tokens as securities.

In January, a debate unfolded between Coinbase and the SEC regarding whether crypto assets traded on the platform met the Howey test for securities. Following the hearing, Bloomberg senior litigation analyst Elliott Stein predicted a 70% chance of Coinbase securing a complete dismissal of the lawsuit.

The SEC initiated legal action against Coinbase in June 2023, alleging that the exchange violated federal securities laws by listing 13 tokens deemed “securities.” Coinbase seeks an order to drop the case, challenging the SEC’s authority over crypto exchanges. The ongoing legal saga underscores the complexity and evolving nature of regulatory frameworks surrounding the crypto industry.

Photo by Sora Shimazaki

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