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Coinbase Asks U.S. Appeals Court to Say On-Platform Crypto Trades Aren’t Securities

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Coinbase has petitioned a U.S. appeals court to rule on whether or not the crypto trading activity on its platform should be subject to securities laws.

In a Tuesday court filing, lawyers for Coinbase urged the Second Circuit Court of Appeals to hear its case, arguing that it “presents the single best opportunity to decide the fundamental legal question of how to treat the secondary trading of digital assets.”

“This case cries out for the Court’s immediate attention,” lawyers for Coinbase wrote in their petition. “Whether secondary-market trading of digital assets falls within the federal securities laws is a question of immense importance to the crypto industry, consumers, financial institutions, and lower courts in need of guidance. This case presents an ideal vehicle to address that question and provide clear rules for this multi-trillion-dollar industry.”

Coinbase argued that crypto trading on its platform should not actually trigger federal securities laws because secondary crypto transactions don’t meet all the prongs of the Howey test, the long-standing legal framework used to decide what qualifies as an “investment contract.” Because buyers and sellers on Coinbase’s platform are matched in a blind bid-ask system and are therefore anonymous to each other, there can be no common enterprise between them, the filing said.

The exchange’s petition comes two weeks after the Southern District of New York (SDNY) issued a rare stay in the U.S. Securities and Exchange Commission’s (SEC) case against Coinbase, allowing Coinbase time to appeal to a higher court for clarity.

The SEC sued Coinbase in June 2023 for allegedly acting as an unregistered securities exchange, broker and clearing agency. When Coinbase attempted to get the suit dismissed, the district court judge overseeing the case denied its motion, finding that the SEC had made a “plausible” argument that the exchange was violating federal securities laws. On Jan. 7, however, the judge punted the question to a higher court, writing “conflicting decisions on important legal issues necessitate the Second Circuit’s guidance.”

The SEC’s case against Coinbase will be put on pause while the exchange seeks answers from the Second Circuit.

The same day Coinbase’s petition was filed, the SEC – now under the leadership of Republican Acting Chair Mark Uyeda – announced the formation of a crypto task force spearheaded by crypto-friendly Commissioner Hester Peirce. The move signals a shift away from the agency’s “regulation by enforcement” approach to crypto under former Chairman Gary Gensler.

“To date, the SEC has relied primarily on enforcement actions to regulate crypto retroactively and reactively, often adopting untested legal interpretations along the way,” the SEC said in a statement. “Clarity regarding who must register and practical solutions for those seeking to register, have been elusive. The result has been confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud. The SEC can do better.»

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Trump’s Memecoin Dinner Questioned by Top Democrat on House Judiciary Committee

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A senior Democrat in the House of Representatives, Jamie Raskin, joined his name to lawmakers seeking answers about President Donald Trump’s recent dinner for top investors in his memecoin, sending questions directly to Trump.

Raskin, the ranking Democrat on the House Judiciary Committee, has been a vocal critic of the president and becomes the latest of many from his party to probe details about the event, which they’ve called out as evidence of White House corruption. Because Raskin is in the minority party, his demands are unlikely to lead to further congressional action unless they regain the House or Senate in next year’s elections.

«I write today to demand that you release the names of all the attendees at this dinner and provide information about the source of the money they each used to buy $TRUMP coins, so that we can prevent illegal foreign government emoluments from being pocketed without congressional consent,» Raskin wrote this week to the president, joining many counterparts in the Senate in seeking the information, including Senators Elizabeth Warren, Chris Murphy and Richard Blumenthal.

«We deserve to know who is paying for access to our president, and what steps you took to ensure that the funds you receive are legitimate and legal, rather than the proceeds from foreign states or monarchs or illegal activities,» Rasking said, specifically highlighting Tron founder Justin Sun, a guest who was a major early investor in Trump’s family crypto operations.

Read More: Democrats Threaten Lawsuits, Join Protests Ahead of Trump Memecoin Dinner

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FTX Repayments May Have Positive Market Impact: Coinbase

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The FTX Recovery Trust will begin distributing over $5 billion in cash and stablecoins to creditors starting on Friday, with funds expected to land in accounts within the next three business days via BitGo and Kraken.

And there’s a chance this wave of repayments will help lift the crypto market, analysts at Coinbase wrote in a report on Friday.

It’s the second major round of repayments following the exchange’s collapse. The first, which began on Feb. 18, returned roughly $7 billion to creditors with claims under $50,000. That did little to lift broader crypto markets at the time, which remained under pressure from macro headwinds.

This latest wave of distributions comes as investor sentiment has shifted, the analysts said. Payments will arrive in stablecoins, offering recipients immediate on-chain liquidity, instead of cash and crypto. That could influence whether the funds are reinvested.

There’s also a broader sense of optimism in crypto markets, thanks in part to a rally in major assets and increased political clarity around regulation. Institutional players, in particular, may feel more comfortable acting on incoming funds, especially as Congress moves closer to passing legislation that would define the roles of U.S. regulators overseeing digital assets.

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Judge Declines to Order DOJ to Review Records in Roman Storm Case

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The federal judge overseeing Roman Storm’s prosecution declined to order the Department of Justice to review its records for any materials it might have missed that would help the Tornado Cash developer at the end of a 30-minute hearing Friday morning, though she told the government it should not have any disclosure issues.

Judge Katherine Polk Failla also ruled that there were no Brady violation concerns with the Department of Justice’s conversations with the Financial Crimes Enforcement Network (FinCEN) about whether mixers needed to register as money transmitters — the conversation that prosecutors pursuing Samourai Wallet developers had with FinCEN officials, but not the prosecutors on Storm’s case — one of the DOJ representatives said in the phone conference on Friday.

If the judge had found that prosecutors had withheld information, it could affect the case moving forward.

«I’m not going to require a further review based on the representations made that there’s no additional material of this type, and based on my views that I don’t believe the material was exculpatory,» she said.

«There’s a difference between ‘this is something I’d like to know’ and ‘this is a Brady violation,'» the judge said, referring to a Supreme Court precedent that requires prosecutors to share any and all information that might help a defendant with the defendant’s team.

Storm’s defense attorneys argued during the hearing that they needed to know when the prosecutors in their case learned about the FinCEN conversation.

«They do plan to say they’re charging a conspiracy to operate an unlicensed money transmitter,» said defense attorney Brian Klein. «My question is who are they supposed to be licensed with? … this is all in the same issue. They’ve only dropped one subpart … but they’re still going to say they’re charging an unlicensed money business.»

Thane Rehn, a prosecutor who worked on the DOJ case against Sam Bankman-Fried, said that his team wouldn’t argue that Tornado Cash needed to secure a license.

«The word ‘license’ doesn’t apply here and the jury won’t be instructed on licensing issues … what we intend to prove at trial is the defendant knew they were transmitting funds derived from criminals,» he said.

The judge did at multiple points ask the prosecutors if they planned to change any other theories or charges in the weeks leading up to the trial, saying doing so might be unfair to the defense. The trial is supposed to kick off in less than two months.

Read more: DOJ Will Still Pursue Roman Storm Case Despite Blanche Memo, Prosecutors Say

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