- The SEC argues that Coinbase has created a deviated form of the original Howey Test, which Coinbase denies.
- Judge Failla remains unsatisfied with the SEC’s statements and demands a clearer definition of securities.
- Lawyer Bill Morgan sees this development as a green signal towards the United States’ classification of cryptocurrencies as non-securities.
The legal brawl between the SEC and crypto exchanges took a new turn in a recent hearing where United States Judge Katherine Polk Failla cross-examined the regulator. The judge remains unsatisfied with the SEC’s statements against Coinbase, and XRP advocate Bill Morgan believes this is a sign that cryptocurrencies will eventually be acknowledged as non-securities in the U.S.
During the hearing, Judge Failla demanded that the SEC provide clearer definitions of terms including “securities” and “staking”, while the SEC criticized Coinbase. According to an X post by Fox Business reporter Eleanor Terrett, the SEC argued that Coinbase is creating a “new version of the Howey Test.”
The SEC lawyer warned Coinbase against reinterpreting the Howey Test. The lawyer stated, “The Congress of 1934 would be surprised that today there would be such an easy workaround to the carefully constructed regulatory structure they created in 1934 with regards to the market.”
However, Coinbase dismissed the SEC’s claims, arguing that they hadn’t reinterpreted the Howey Test. On the contrary, the SEC’s legal team added that the agency is “stretching the Howey Test to fit the circumstances.” The Coinbase lawyer asserted,
The Commission’s complaint draws the court into completely unprecedented territory. The SEC should follow enforcement and rulemaking actions that make sense of statutory language and doesn’t twist it upside down. This is several bridges too far and for that reason we ask you to dismiss completely.
In an earlier X post, Terrett shed light on Judge Failla’s reliance on Judge Jed Rakoff and Judge Analisa Torres’ rulings on LBRY and XRP, respectively, for crucial insights. Reflecting on Judge Torres’ conclusion of XRP as a non-security and Coinbase lawsuit’s current state, Morgan wrote, “It is now common ground the tokens themselves are not securities.”
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