Coinbase Goes to Court Against the SEC

Coinbase (COIN) and the Securities and Exchange Commission will meet in court this week. The hearing – the questions asked and the answers given – should provide some hints on how the case may go (for now, anyway).

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The narrative

Coinbase and the Securities and Exchange Commission will meet in court this week. The hearing may give us a sense of how the judge is looking at the case in its earliest stages.

Why it matters

The case just began, and is likely to drag on for years if the parties don’t settle (see: SEC v. Ripple Labs, which is now halfway through its third year). Still, in the interest of reading tea leaves, the questions Judge Katherine Polk Faila asks and how attorneys for the SEC and Coinbase respond will indicate what issues may take prominence during the start of this legal battle.

Breaking it down

Coinbase and the U.S. Securities and Exchange Commission (SEC) will meet in court this Thursday for the first time in the federal regulator’s lawsuit against the crypto exchange.

To quickly recap: The SEC sued Coinbase in early June alleging that the cryptocurrency trading platform was simultaneously operating as a broker, an exchange and a clearinghouse for unregistered securities – namely, 13 different cryptocurrencies the SEC alleged met the requirements of the Howey Test, the 1940s precedent laid down by the U.S. Supreme Court.

Coinbase has telegraphed the SEC lawsuit for months, publishing a blog post when it first received a Wells Notice from the regulator and maintaining a legal effort to convince a court that there isn’t enough regulatory clarity right now for crypto industry participants to know whether or not they’re running afoul of federal securities laws.

The exchange continued that effort in its first formal response to the SEC last month, when Coinbase argued that the SEC was violating its due process rights and simultaneously trying to preempt Congress by bringing a lawsuit.

Coinbase also argued that the allegations shouldn’t even apply to its operations.

“Like all securities, an economic arrangement can qualify as an investment contract only if it involves an ongoing business enterprise whose…