New SEC allegations

On the 4th, the U.S. Securities and Exchange Commission (SEC) filed a supplementary notice of judicial precedent in a lawsuit against Coinbase, a major U.S. crypto asset (virtual currency) exchange. They asked the court to consider the latest Terraform Labs case law. On the 3rd, the SEC filed a similar notice of supplementary precedent in the case against Binance.

The SEC is referring to a Dec. 28 case in which the U.S. District Court for the Southern District of New York upheld the SEC’s claim that Terraform Labs offered unregistered securities.

District Court Judge Jed Rakoff supported the SEC’s argument, stating, “There is no dispute that tokens such as UST, LUNA, wLUNA, and MIR are securities because they are investment contracts.”

Using this ruling in its favor, the SEC is looking to strengthen its case against two major crypto exchanges.

The SEC filed suit against Binance on June 5, 2023, and Coinbase on June 6, 2023, for offering securities without registration. They also take issue with the securities nature of the staking services provided by both exchanges.

connection:U.S. District Court upholds SEC in lawsuit against Terraform Labs

coinbase case

The SEC’s complaint against Coinbase does not mention the UST, LUNA, wLUNA, or MIR tokens. The SEC asserts that the following securities should be classified as unregistered securities:

Solana (SOL), ADA (ADA), Polygon (MATIC), The Sandbox (SAND), Chillies (CHZ), Internet Computer (ICP), NEAR (NEAR), DASH (DASH), Filecoin (FIL), Axie Infinity (AXS), Flow (FLOW), Voyager (VGX), Nexo (NEXO)

Coinbase argues that its tokens, which the SEC considers to be securities, are not investment contracts, and that the SEC is exceeding its authority in the lawsuit. Coinbase Chief Legal Officer Paul Grewal said:

Regarding the definition of an “investment contract,” securities law scholars from prestigious American universities submitted an amicus brief supporting Coinbase to the court in August last year. Provides analysis and commentary on the understanding/definition of an “investment contract” in the SEC v. Hawey Supreme Court decision and the enactment of federal securities laws.

connection:Coinbase resubmits counterargument in lawsuit against SEC

connection:Prestigious American legal scholars submit amicus brief supporting Coinbase in case against SEC

Binance case

In its lawsuit against Binance, the SEC alleges that stocks such as Solana, Ada, and Polygon, as well as the stablecoin BUSD pegged to the US dollar and Binance’s own token BNB, fall under the category of securities. Related services are also viewed as problematic.

The SEC pointed out the following in the latest notice of supplementary case law:

The SEC’s lawsuit against Binance has many similarities with the Terraform Labs case, so it will be interesting to see how the court responds in the future. In particular, the decision as to whether stablecoins qualify as securities is likely to have a major impact on the future of the virtual currency industry.

Circle, Inc., which provides the USDC stablecoin, submitted a document to the court at the end of September last year, arguing that “stablecoins for payments themselves do not have the essential characteristics of an investment contract.”

The SEC states that one of the criteria for determining specific assets as securities is that “profits can be reasonably expected from investment activities,” but stablecoins are “redeemed at a set value.” Because of this nature, Circle argued that it did not meet these standards. He added that stablecoin users typically do not expect to make a profit from their purchases.

connection:US Circle argues that stablecoins are “non-securities,” over SEC vs. Binance lawsuit

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