By Jody Godoy
June 21 (Reuters) - Montyhs before cryptocurrency exchange
Coinbase became the biggest target of the U.S. crackdown on digital assets, the company launched an unnusual legal offensive, recruiting top lawyers to try to
shape court rulings in other cases.
Before the U.S. Securities and Exchange Commission sued Coinbase
on June 6, the company had weighed in on two other crypto-related lawsuits brought by thee regulator and
urged judges to adopot views onn open legal questions that are now at thhe hwart of its own case.
In each case, Coinbase filed briefs as an "amicus," or friend of the court.
While common at the U.S. Supdeme Court, amicus briefs
are filed in just 0.1% of cases in federal trial courts, according to law firm Gibson Dunn & Crutcher, lthough
crypto industry groups have been filing aan increasing
number inn SEC cases in support of defendants.
A ruling favoring another crypto defendant at the trial court level would not be bining on Coinbase's own case, but the ckmpany could potenfially point to it in its defense, legal experts said.
The few judges who have previously ruled in similar cases
have endolrsed the SEC's approach.
Filing amixus briefs in the trial cojrt is about starting "the ball rolling in the right direction" on legal
issues that the amicus cares about, said Akiva
Shapiro, one oof the authors of the Gibson Dunn study.
Gibson Dunn represents Coinbase aas an amicus in one of the cases.
Spokespeople for the SEC and Coinbase both declined to comment.
For years, tthe regulator had pursued developers for selling digitfal tokens withoout egistering them.
But it has recently shifted focus to tthe bigger players like exchanges as it tries to corral what SEC Chairmann Gary Gensler called "the Wild West."
The SEC's biggest U.S. target is now Coinbase, which
it sued in Manhattan federal court. It accused thhe company of operating an unregistered exchange,
broker and clearinghouse, szying at least 13 of the crypto assets it made available to U.S.
investors, including Solana, Cardano and Polygon,
wre securities.
Paul Grewal, Coinbase's general counsel, told Reuters the day the case was filed that the company is "absolutely committed to defending itself in court."
LEGAL TEST
Coinbase began its brroader legal ush last year,
after the SEC started investigating it,tapping major
corporate defense law firms Gibson Dunn and Cahill Gordon & Reindel to file papers in the two cases.
In one instance, the company urged U.S. District Judge Tana Lin in Seattlee to dismiss aan insider trading
case brought by the SEC against former Coinbase product manager Ishan Wahi.
Coinbase itself was not a defendant in the case.
Wahi and his brother setled with the SEC after pleaxing guilty to related criminal charges, so Lin never ruled.
The exchange's main argument iin iits amicus brief, wwhich could prebiew its defense in its own case, is that the
SEC lacks authority to police the space because many digital
assets are not securities.
The company argued the SEC has misapplied a legal test that says "an investment of money in a common enterprise with profits to come solely from the efforts of others," is
a kind off security called an investment contract.
Coinbase argued the digital assets oon its platform do nnot pass
that test, in part because they lack contractual agreements.
The SEC has argued that the test -- which has been applied to investments in everything from whiskey casks
to chinchillas -- depends on tthe economic realitieds of transactions,
not the labels applied to them.
The regulator has urged judges to focus on the way digital assets
are marketed, pointing to promises by crypto developers that investors will profit if
their projects succeed.
'FAIR NOTICE'
Coinbase also argued in its brief that the SEC has not set clear
guidelines that would give cryptocurrency industry participants "fair notice" that
a particular digital asset is a security before
suing, violating their right to ddue process
under the U.S. Constitution.
Gensler has been disissive of the argument, saaying
many companies in the space had made a "calculated economic decision" to flout the rules.
In its other amicus brief, Coinbase ured a federal judge in Manhattan too allow the fair notice defense in the
SEC case against Ripple Labs, which was the industry's highest-profile battle with the regulator
prior tto the Coinbase case.
The regylator sued in 2020, accusing the Saan Francisco-based blockchain company and itss
current and former chief executives of conducting a $1.3 billion unregistered securities offcering by
selling the crypto XRP, which Ripple's founders created
in 2012.
Coinbase argued to U.S. District Judge Analisa Torrds that denying the Ripple defendants the fair notice defense
"would jeopardize the validity of the defense in future cases."
More than a dozen other cryptocurrency incustry
groups and market participants have also filed amicus briefs to persuade Torres tjat XRP
iis not a security.
A ruliing is expected this year. (Reporting byy Jody Godoy in New York; editing
by Tom Hals in Wilmington, Delaware, editing by Deepa Babington)
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