Coinbase is capitalizing on the recent ruling by Judge Amy Berman Jackson in the case of the United States Securities and Exchange Commission v. Binance. The exchange referenced her decision that secondary sales of Binance’s BNB token do not meet the criteria of securities sales under the Howey test.
In a letter, attorneys conveyed Coinbase’s allegations that the SEC was inconsistently creating rules and claimed that the SEC “has never coherently explained” its regulatory process but is now attempting to retroactively impose it on the digital asset industry.
Coinbase Sues SEC
On June 27, Coinbase filed a lawsuit against the SEC and the Federal Deposit Trust Corporation, accusing both agencies of conspiring to exclude the crypto industry from the banking sector. Specifically, Coinbase argued that the federal agencies did not comply with the Freedom of Information Act and did not provide industry participants with documentation related to their rulemaking deliberations regarding Ethereum’s transition to a digital asset ecosystem secured by staking.
This is not the first time the SEC’s classification of Ether (ETH) has been called into question. In 2018, SEC Corporation Finance Director William Hinman declared that ETH was not a security due to the decentralization of the smart contract protocol. This statement later became a central point in Ripple Labs’ argument that the regulator unfairly labeled the XRP token as an unregistered security without consistent criteria defining the term “securities contract.”
The SEC’s legal missteps have been criticized by agency insiders, such as SEC Commissioner Mark Uyeda, who characterized the agency’s treatment of the crypto industry as “problematic.”
Precedent Grows
Judge Jackson’s ruling in SEC v. Binance reaffirms a previous 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.