Coinbase lawyers are requesting that the judge overseeing their legal dispute with the U.S. Securities and Exchange Commission (SEC) disregard a previous ruling that classified secondary sales of cryptocurrency assets as “securities transactions.” They argue that this decision was not properly examined in court.
In a letter dated March 5, Coinbase attorney Michael Savitt urged U.S. District Judge Katherine Failla to reject the SEC’s classification of crypto sales on the secondary market as securities contracts in the SEC vs Wahi case, asserting that this ruling should carry no weight.
The SEC had filed a lawsuit in July 2022 against former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi, and their friend Sameer Ramani, accusing them of insider trading involving nine cryptocurrencies. The Wahi defendants sought to dismiss the case, arguing that the tokens did not qualify as “investment contracts” and were therefore beyond the SEC’s jurisdiction. Coinbase and others supported this motion by filing briefs.
However, before the court could rule on the motion, the SEC reached a settlement with the Wahi brothers in June 2023, with no monetary penalties and no admission or denial of guilt. The SEC later obtained a default judgment against Ramani, who did not appear in court. The court accepted the SEC’s claim that the crypto assets were “investment contracts,” a position the SEC itself had rejected in the Coinbase case.
Savitt contends that the judgment against Ramani should not be given any importance since the crucial issues were never properly argued or examined in court.
Coinbase’s response to the SEC’s notice on March 4, which aimed to undermine their case by highlighting the relevance of the Wahi insider trading case, is a reaction to this development. The SEC claimed that the tokens were deemed securities by the court at that time.
In January, Coinbase and the SEC debated whether the crypto assets traded on Coinbase’s platform met the Howey test to determine if they were securities. Following the hearing, Bloomberg senior litigation analyst Elliott Stein predicted a 70% chance of the exchange successfully obtaining a full dismissal in the lawsuit.
The SEC filed the lawsuit against Coinbase in June 2023, alleging that the cryptocurrency exchange violated federal securities laws by listing 13 tokens that the SEC considered to be “securities.” Coinbase is seeking an order to dismiss the case, questioning the SEC’s authority over crypto exchanges.