Coinbase is building on the momentum from Judge Amy Berman Jackson’s ruling in the United States Securities and Exchange Commission v. Binance case. The exchange cited her precedent-reinforcing decision that secondary sales of Binance’s BNB token do not constitute securities sales under the criteria listed in the Howey test.
In a letter, attorneys relayed Coinbase’s accusations that the SEC was arbitrarily engaging in rule-making without a consistent framework and wrote that the SEC “has never coherently explained” its regulatory process “but is attempting to impose [it] retroactively on the digital asset industry through a scorched-earth enforcement campaign.”
Coinbase sues SEC
On June 27, Coinbase filed a lawsuit against the SEC and the Federal Deposit Trust Corporation, alleging both government agencies conspired to keep the crypto industry out of the banking sector.
More specifically, Coinbase argued that both federal agencies failed to comply with the Freedom of Information Act and neglected to provide industry participants with documentation relating to their rulemaking deliberations regarding Ethereum’s pivot to a digital asset ecosystem secured by staking.
This is not the first time the SEC’s categorization of Ether (ETH) has faced scrutiny. In 2018, SEC Corporation Finance Director William Hinman stated that ETH was not a security due to sufficient decentralization of the smart contract protocol.
Hinman’s assertion later became a focal point of Ripple Labs’ argument that the regulator unfairly labeled the XRP (XRP) token as an unregistered security without consistent criteria defining the term “securities contract.”
These legal missteps by the SEC have drawn criticism from agency insiders, like SEC Commissioner Mark Uyeda, who characterized the agency’s treatment of the crypto industry as “problematic.”
Precedent mounts
Judge Jackson’s ruling in SEC v. Binance reinforces an earlier precedent set in SEC v. Ripple Labs by Judge Analisa Torres, which established that secondary sales of XRP did not represent sales of unregistered securities because the digital asset did not meet the SEC’s criteria to qualify as an investment contract.
However, Judge Torres also ruled that initial sales of XRP to institutional investors did constitute securities sales due to the manner in which the sales took place, not the underlying characteristics of the token.