Coinbase attorneys said that a judge in New York should dismiss a lawsuit opened by the SEC, arguing that the agency has overstepped its boundaries.

The SEC had accused Coinbase of operating as a securities exchange, also broker and clearing agency without registering, back in June. However, the exchange responded to this allegation on Tuesday, arguing that the agency’s authority is limited to securities transactions.

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Coinbase’s Attorneys Says:

In a file, Coinbase stated, “Investment contracts give the buyer a contractual claim to future income, profit, or assets of a commercial enterprise. This is what makes them securities rather than just investments.“

“As the SEC’s complaint does not allege, and cannot allege, that the simple asset trades it describes come with ongoing contractual obligations related to a commercial venture, Coinbase has the right to decide about defenses.”

Coinbase claimed that an investment contract would be present under the SEC’s existing argument when someone expects the value of their purchase to increase or when they divest. The exchange said that this would give the SEC authority over different matters.

Coinbase said, “According to the SEC’s understanding, every sale and resale of pictures on Etsy would be a securities transaction”. They added, “Consider an artist selling pictures on Etsy with a note indicating they plan to exhibit their work in a gallery next month. Those who read the note might buy the paintings hoping that the artist’s plans to increase their visibility would increase their value.”

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The SEC referred to the Howey Test, a case of the 1946 US Supreme Court, to determine whether transactions were investment contracts or not. Coinbase claimed that the SEC’s arguments in Howey were broadened “beyond recognition“.

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