Coinbase vs SEC Continues, Discussing the Definition of Security Tokens

Source : Photo by PiggyBank on Unsplash

On Wednesday (17/1/24), Coinbase and the United States Securities and Exchange Commission (SEC) attended a hearing in the Southern District of New York court. They discussed whether the SEC's legal action against Coinbase, alleging that Coinbase sold securities without permission, is valid or not.

The hearing was presided over by Judge Katherine Polk Failla. Judge Failla expressed concerns that the SEC might misunderstand U.S. securities laws and could be overstepping the boundaries.

She also questioned what is considered "security tokens," meaning that if someone buys a token, they are essentially buying shares in a company and expecting profits from that investment.

Coinbase's lawyer, William Savitt, argued that almost anything that can be purchased could be considered a security if following that definition.

He gave an example that even toys like Beanie Babies could be considered securities if we apply that definition.

Savitt also stated that unlike stocks or bonds, crypto tokens do not grant their holders specific rights in the company issuing the token. According to him, to be considered a security, there must be a clear investment contract and legal mechanisms.

"Investment contracts must have a contract," he said, explaining the type of "legal enforcement mechanisms" that need to be present, at least, for something to be deemed a security.

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Coinbase Could Delist Many Popular Tokens

Source: Photo by Ferhat Deniz Fors on Unsplash

A law professor from the University of Georgia, Todd Philips, who also attended the hearing, stated that Coinbase has been running its business correctly, except for potential securities law violations.

"They (Coinbase) can't really run their business just by listing Bitcoin," said Philips.
He also mentioned that if the definition of security tokens is applied, many tokens listed on Coinbase would be considered securities, and Coinbase might have to register as a securities exchange or delist many of those tokens, except for Bitcoin.

Thirteen tokens were explicitly declared as security tokens and traded on Coinbase, some of which are crypto assets with significant valuations like Solana (SOL), Cardano (ADA), and Polygon (MATIC).

Some tokens on the list of security tokens include Solana (SOL), Cardano (ADA), and Polygon (MATIC).

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