By Jody Godoy
(Reuters) – Months before cryptocurrency exchange Coinbase became the main target of the U.S. crackdown on digital assets, the company launched an unusual legal offensive, hiring top lawyers to try to shape the decisions of justice in other matters.
Before the U.S. Securities and Exchange Commission sued Coinbase on June 6, the company weighed in on two other crypto-related lawsuits filed by the regulator and urged judges to adopt views on open legal issues. who are now at the heart of his own business.
In each case, Coinbase filed briefs as “amicus” or friend of the court.
Although common in the U.S. Supreme Court, amicus briefs are filed in just 0.1% of cases in federal trial courts, according to law firm Gibson Dunn & Crutcher, although that crypto industry groups have filed an increasing number of cases with the SEC in support of the defendants.
A decision favoring another crypto defendant at the trial court level would not be binding on Coinbase’s own case, but the company could potentially point that out in its defense, legal experts said. The few judges who have already ruled in similar cases endorsed the SEC’s approach.
According to Akiva Shapiro, one of the authors of the Gibson Dunn study, filing amicus briefs with the trial court is about getting “the ball rolling in the right direction” on legal issues the amicus is concerned about.
Gibson Dunn is representing Coinbase as an amicus in one of the cases.
Spokespersons for the SEC and Coinbase both declined to comment.
For years, the regulator has sued developers for selling digital tokens without registering them. But he’s recently focused on the bigger players like exchanges as he tries to correlate what SEC Chairman Gary Gensler has called “the Wild West.”
The SEC’s biggest US target is now Coinbase, which it sued in Manhattan federal court. He accused the company of operating an unregistered exchange, broker and clearing house, saying that at least 13 of the crypto assets made available to US investors, including Solana, Cardano and Polygon, were securities.
Paul Grewal, Coinbase’s general counsel, told Reuters on the day the case was filed that the company was “absolutely committed to defending itself in court.”
LEGAL TEST
Coinbase began its broader legal campaign last year, after the SEC began investigating, bringing in leading corporate defense law firms Gibson Dunn and Cahill Gordon & Reindel to file documents in both business.
In one case, the company urged U.S. District Judge Tana Lin in Seattle to dismiss an insider trading case brought by the SEC against former Coinbase chief product officer Ishan Wahi.
Coinbase itself was not a defendant in the case.
Wahi and her brother settled with the SEC after pleading guilty to related criminal charges, so Lin never made a ruling.
The exchange’s main argument in its amicus brief, which may preview its defense in its own case, is that the SEC lacks the power to control the space because many digital assets are not securities.
The company argued that the SEC misapplied a legal test that “an investment of money in a joint venture the profits of which derive solely from the efforts of others” is a kind of security called an investment contract.
Coinbase argued that its platform’s digital assets did not pass this test, in part because they lacked contractual agreements.
The SEC argued that the test — which has been applied to investments in everything from whiskey casks to chinchillas — depends on the economic realities of the transactions, not the labels applied to them.
The regulator has urged judges to focus on how digital assets are traded, pointing to promises from crypto developers that investors will profit if their schemes succeed.
“FAIR NOTICE”
Coinbase also argued in its brief that the SEC failed to establish clear guidelines that would give cryptocurrency industry participants “fair warning” that a particular digital asset is a security before proceeding. violating their right to due process under the US Constitution.
Gensler dismissed the argument, saying many space companies made a “calculated economic decision” to flout the rules.
In its other amicus brief, Coinbase urged a federal judge in Manhattan to allow the fair notice defense in the SEC case against Ripple Labs, which was the industry’s most high-profile battle with the regulator before the case. Coinbase.
The regulator filed a lawsuit in 2020, accusing the San Francisco-based blockchain company and its current and former CEOs of conducting a $1.3 billion unregistered securities offering by selling the crypto XRP, which the founders of Ripple created in 2012.
Coinbase argued to U.S. District Judge Analisa Torres that denying Ripple defendants the fair notice defense would “undermine the validity of the defense in future cases.”
More than a dozen other cryptocurrency industry groups and market players have also filed amicus briefs to persuade Torres that XRP is not a security.
A decision is expected this year.
(Reporting by Jody Godoy in New York; Editing by Tom Hals in Wilmington, Delaware, Editing by Deepa Babington)