SEC Could Label “Pokemon Cards” as Securities, Coinbase CLO

• The US SEC filed an opposition to Coinbase’s motion to dismiss the lawsuit filed against the exchange.
• Coinbase legal head Paul Grewal argued that the SEC “makes sweeping claims of what the law is” without legal citations.
• Grewal also argued that the SEC will go as far as to label “Pokemon cards” as securities.

Earlier today, Coinbase Chief Legal Officer, Paul Grewal posted on X (formerly Twitter) that the US  SEC responded to Coinbase’s motion to dismiss and restated its stance that certain cryptocurrencies featured on the Coinbase platform qualified as investment contracts under the Howey Test, making them subject to SEC registration.

According to Grewal, the SEC repeatedly asserted its interpretations of the law without providing legal citations. He emphasized that the assets Coinbase includes in its platform are not securities. Hence, they “are not within the SEC’s jurisdiction,” as already highlighted in “court decisions over the past several months.” The legal head further calls out SEC noting that,

The SEC’s arguments today would mean that everything from Pokemon cards to stamps to Swiftie bracelets are also securities. As Rep. Ritchie Torres made so clear last week, that is simply not the law, nor should it be.

In July 2022, Coinbase published a statement declaring that the exchange does not list securities. The statement entailed that  Coinbase follows “a rigorous process to analyze and review each digital asset” before offering it on our platform as part of a process already reviewed by the SEC. Moreover, this thorough process includes an assessment of whether the asset may fall under the category of security, as well as a thorough examination of regulatory compliance and the asset’s information security aspects.

In Grewal’s recent thread, he reported that the SEC’s ongoing enforcement-based regulatory strategy disregards the “52-million strong crypto constituency in the US,” which actively seeks comprehensive regulations. On September 27,  founders representing over 40 crypto firms across the US, flew to Washington DC to join crypto advocacy hub Stand With Crypto to urge their representatives to enact legislation that safeguards consumers and creates opportunities.

Lastly, Grewal commented that the Coinbase team will be submitting their response in court on October 24. General Counsel and Head of a16z crypto, Miles Jennings, also supported Grewal, noting that the SEC’s opposition “has a lot of holes.” Moreover, he asserted that even if the court were to align with the regulator’s primary argument regarding investment contracts, he believes the case “should still fail,” due to the SEC’s limitless scope when it comes to the definition of an investment contract.