Coinbase vs SEC : Coinbase Requests for Interlocutory Appeal on Investment Contracts Ruling

Coinbase, the popular cryptocurrency exchange, has made a unique move by filing a motion requesting an interlocutory appeal on a ruling related to investment contracts. This request comes in the midst of a contentious debate over the interpretation of the Howey Test for cryptocurrencies.

The news was first reported by Fox Business journalist Eleanor Terrett, who revealed that Coinbase has sought permission from Judge Failla to pursue the appeal. The motion follows the judge’s decision last month to deny Coinbase’s request to dismiss the Securities and Exchange Commission’s (SEC) lawsuit against them. Judge Failla’s denial cited Judge Rakoff’s opinion from the Terra case, indicating that certain digital assets could meet the criteria for investment contracts under the Howey Test.

Coinbase is now challenging the application of the Howey Test to digital assets, highlighting the divergence of judicial opinions as a critical factor for granting an interlocutory appeal. Terrett noted that obtaining such appeals before a final judgment has historically been difficult, as demonstrated by the SEC’s failed attempt last year in the Ripple case.

The crux of Coinbase’s argument in its appeal is whether transactions involving crypto tokens should be classified as investment contracts when they do not involve any legal obligations from the issuer. This classification is crucial because it determines whether these transactions require registration under securities laws. Coinbase contends that once a digital asset is traded on secondary markets and moves away from its initial business context, it should no longer fall under the SEC’s regulatory purview.

The focus of this legal battle is Judge Failla’s recent ruling, which favored the SEC’s position and allowed the lawsuit to proceed on most counts. The decision highlights the significant legal questions surrounding the application of securities laws to cryptocurrencies, making the interlocutory appeal a crucial step for Coinbase.

By requesting this appeal, Coinbase seeks to address the challenges posed by the Howey Test and the conflicting responses from various judicial, legislative, and regulatory bodies. The appeal now awaits the U.S. Court of Appeals for the Second Circuit’s consideration, as it reviews the SEC’s perspective on digital assets independent of the ongoing lawsuit.