Judge blasts SEC with sharp questions as Coinbase hearing begins

New York District Judge Katherine Polk Failla asked the Securities and Exchange Commission direct questions in court Wednesday about securities, what constitutes staking and how the lead question doctrine applies to the case.

Coinbase was sued by regulators in June. It operates as an unregistered exchange, broker and clearing agent. Coinbase refuted these claims, asserting that the incident was as follows: fired It accuses regulators of taking “regulation by enforcement approach.”

The SEC said in its June complaint that the tokens, including SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH and NEXO, were securities.

In court Wednesday, Failla asked the SEC whether the token issuers named in the complaint violated securities laws.

“Well, not exactly, your honor.” a lawyer for the agency said. The tokens described in the complaint are computer code, the attorney added.

“The reason I’m smiling is because your friends at the back table are wondering why we’re here,” Failla said.

beanie baby

Failla also asked the SEC how it defines a security, and expressed concerns that it could be too broad and sweep up collectibles like Beanie Babies.

“I hadn’t thought about Beanie Babies in decades, but it was presented to me through several briefs,” Failla said.

“It’s really scary that your claims are being spread so widely,” Failla added. The SEC’s attorney said it “does not assert that the collectibles are securities.”

Failla also stated that he does not want to be an “activist judge” and noted that he received a briefing from U.S. Sen. Cynthia Lummis, R-Wyo. called The SEC’s lawsuit against Coinbase was dismissed.

The Howey test was enacted in response to Congress’ intent, and no single member of Congress can override Congress’s will, an attorney for the SEC said. “The principle of questioning is to let everyone follow his or her lane,” the SEC’s attorney said.

This principle requires that agencies obtain explicit congressional approval to decide on matters of national importance.

staking

Failla also refuted the SEC’s allegations that Coinbase engaged in the offering of unregistered securities through its staking-as-a-service program.

Failla said staking is “the least traditional investment feature we’re complaining about here.”

Judge Failla is currently questioning Coinbase.

If the judge denies Coinbase’s motion (which is highly likely), discovery will proceed. Once discovery is concluded, both the SEC and Coinbase can move for summary judgment.

If the judge isn’t convinced, it will go to trial and go to a jury, but that likely won’t happen until 2025.

Uniswap Labs Case Study

Failla fired Last year, a class action lawsuit was filed against Uniswap Labs, Uniswap Foundation, and investors Paradigm, Andreessen Horowitz, and Union Square Ventures. In this case, it refuses to “extend” federal securities laws, implying that such expansion is the province of Congress.

Other judges have taken a straightforward stance in deciding whether the cryptocurrency in question is a security.

New York District Court Judge Annalisa Torres rule In July, it said some of Ripple’s programmatic XRP sales did not violate securities laws due to its blind bidding process. She also ruled that other direct sales of tokens to institutional investors were securities, giving the SEC a partial victory.

Judge Jed Rakoff of the U.S. District Court for the Southern District of New York both sides Allegations were filed with the SEC last month that Kwon and Terraform Labs offered and sold unregistered securities. Rakoff granted summary judgment to the SEC on those claims and sided with Terraform on “claims related to the offering and execution of security-based swap transactions.” Bespeak It was submitted in December.

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