Coinbase Asks Court to Refuse to Use Default Judgment in SEC Lawsuit

Key Takeaways

Coinbase’s lawyers urged the judge to reject the SEC’s classification of cryptocurrency sales on secondary markets as securities contracts, saying the ruling in the SEC and Wahi case should be “weightless.”

The Wahi defendants argue that the tokens are not “investment contracts” and therefore outside SEC jurisdiction.

Coinbase’s legal battle with the U.S. Securities and Exchange Commission (SEC) has taken another turn as the cryptocurrency exchange challenged a previous ruling that classified secondary sales of cryptocurrency assets as “securities transactions.” Lawyers representing Coinbase urged U.S. District Judge Katherine Failla to set aside the ruling, arguing the matter was not properly investigated in court.

In a letter dated March 5, Coinbase attorney Michael Savitt urged Judge Failla to refuse to allow the SEC to classify cryptocurrency sales on secondary markets as securities contracts. Savitt emphasized that the ruling in SEC v. Wahi, which deemed these sales to be securities transactions, should take “weightlessness” from Coinbase’s legal proceedings.

The SEC’s lawsuit against Coinbase stems from a July 2022 incident in which the regulator 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 dismissed the case, arguing that the tokens were not “investment contracts” and therefore outside SEC jurisdiction, but the SEC settled with them in June 2023 with “$0, no approval.” agreement.

However, the SEC entered an unopposed default judgment against Ramani, who did not appear for the case. Savitt argued that the ruling should be set aside because important issues were not properly investigated or discussed in court.

“The Wahi order was procured for empty chairs and the reasoning reflects as much,” he said. Coinbase respectfully submits that the default judgment against Mr. Ramani should not be given any weight.”

Coinbase’s response comes after the SEC attempted to notify the court of a default judgment issued in an insider trading case involving Ramani. The SEC argued that the ruling was relevant because it considered the tokens to be securities, a position Coinbase is contesting.

The legal dispute between Coinbase and the SEC intensified in June 2023 when the SEC sued Coinbase, alleging violations of federal securities laws related to the listing of 13 tokens deemed “securities.” The lawsuit also targets Coinbase’s ‘staking’ program, raising concerns about unregistered securities.

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