© Thomson Reuters PHOTO: Illustration shows the Coinbase cryptocurrency and logo.Judy Godoy
(Reuters) - Months before cryptocurrency exchange Coinbase became a top U.S. target for digital assets, the company launched an extraordinary legal attack by hiring top lawyers to prepare court rulings in other business.
Before the SEC sued Coinbase on June 6, the company reviewed two other cryptocurrency-related lawsuits filed by the regulator and asked judges to rule on open legal issues now at the center of its case.
In each case, Coinbase applied as the curator of a friend or buddy.
According to law firm Gibson Dunn & Crutcher, friendly notes are only filed in 0.1% of U.S. Supreme Court cases, though crypto industry groups have filed a increasing number of lawsuits in favor of the defendants with the SEC, according to the law firm Gibson Dunn & Crutcher. . .
Legal experts said the court's decision in favor of the co-defendant would not be binding on the Coinbase case itself, but the company could invoke it in its defense. Few judges who have heard similar cases before have taken the SEC's approach.
Filing a friend's petition in lower court is a way to "start moving in the right direction" on a friend's legal issues, said Akiva Shapiro, one of the authors of the Gibson Dunn study.
Gibson Dunn presents Coinbase as a friend in this case.
Representatives for the SEC and Coinbase declined to comment.
Developers have been sued by the regulator for years for selling digital tokens without registering them. But recently, he's focused on bigger players like exchanges in an effort to disrupt what SEC Chairman Gary Gensler has called the "Wild West."
Right now, the US SEC's biggest target is Coinbase, which is being sued in federal court in Manhattan. He accused the company of operating as an unregistered exchange, brokerage and clearinghouse, saying that at least 13 crypto assets provided to US investors, including Solana, Cardano and Polygon, were securities.
Coinbase General Counsel Paul Grewal told Reuters on the day the case was filed that the company was "fully committed to defending itself in court."
legal review
Coinbase made its biggest legal move last year after the Securities and Exchange Commission launched an investigation into the case, hiring leading corporate defense law firms Gibson Dunn and Cahill Gordon & Rendell to file charges. documents in both cases.
In one case, the company asked U.S. District Judge Tanu Lane in Seattle to dismiss an insider trading case brought by the Securities and Exchange Commission 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 their respective criminal charges, so Lin never settled.
The exchange's main argument in the amicus report, which may presage its defense in this case, is that the SEC lacks the power to control the space since many digital assets are not securities.
The company argued that the SEC misapplied the legal test that "investing money in a joint venture whose profits are derived solely from the efforts of others" is a type of security called an investment contract.
Coinbase says its platform's digital assets fail this test, in part due to a lack of contractual agreements.
The SEC argued that the test, which applied to investments in everything from whiskey barrels to chinchillas, was based on the economic facts of the transactions, not the labels attached to them.
The regulator asked judges to focus on how digital assets are traded, citing promises from cryptocurrency developers that investors will benefit if their projects succeed.
"fair notice"
Coinbase also argued in a statement that the SEC failed to establish clear guidelines that would give crypto industry participants “fair warning” that a particular digital asset is a security before taking action. in court, violating their right to due process under the US Constitution.
Gensler dismissed that argument, saying many companies in the space made a "calculated economic decision" to circumvent the rules.
In another out-of-court appeal, Coinbase asked a federal judge in Manhattan to resolve the defense in the SEC case against Ripple Labs, which was the industry's highest-profile battle with a regulator before the Coinbase case. .
In 2020, the regulator filed a lawsuit accusing the San Francisco-based blockchain company and its current and former executives of conducting an unregistered $1.3 billion IPO by selling XRP, a cryptocurrency. currency created by the founders of Ripple in 2012.
Coinbase told U.S. District Judge Analys Torres that denying Ripple defendants a fair defense warning “would compromise the health of the defense in future cases.”
More than a dozen other cryptocurrency industry groups and market participants also provided friendly information to convince Torres that XRP is not a security.
A decision should be made this year.
(Reporting by Judy Godoy in New York; Editing by Tom Hales in Wilmington, Delaware; Editing by Debbie Babington)