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

Eleanor Terrett, the renowned FOX Business journalist, just broke the news via Twitter. According to her, Coinbase has officially requested permission from Judge Failla to seek an interlocutory appeal regarding a ruling on investment contracts. This comes in the wake of a stressful time where the interpretation of the Howey Test on cryptocurrencies has become a divisive issue.

Judge Failla, last month, had dismissed Coinbase’s motion to drop the SEC’s lawsuit against them. The denial referenced Judge Rakoff’s opinion from the Terra case, which suggested that certain digital assets could be considered investment contracts under the Howey Test. 

Coinbase is now challenging the application of this test to digital assets, highlighting a split in judicial opinions as an important point of law essential for granting an interlocutory appeal. 

Terrett explained that historically, securing such appeals before a final judgment has proven challenging, exemplified by the SEC’s failed attempt last July to overturn Judge Torres’s decision regarding secondary market token sales in the Ripple case.

Coinbase seeks to address a specific legal disagreement by asking the U.S. Court of Appeals for the Second Circuit to review the SEC’s view of digital assets independently of the ongoing lawsuit. 

The appeal argues that the Howey test presents major challenges, evidenced by the varied responses from different judicial, legislative, and regulatory bodies.

The appeal focuses on whether a transaction involving crypto tokens should be classified as an investment contract when it does not involve any legal obligation from the token’s issuer. Such classifications are very important because they determine whether these transactions actually need registration under securities laws. 

Coinbase argues that once a digital asset is traded on secondary markets, disconnecting from the initial business context, it should no longer be considered within the SEC’s regulatory circle. 

This legal battle now revolves around Judge Katherine Polk Failla’s recent ruling, which favored the SEC’s position, allowing the lawsuit to proceed on most counts. 

This decision from the U.S. District Court for the Southern District of New York emphasizes the gravity of the legal questions at hand, particularly regarding how securities laws apply to cryptocurrencies.