In a letter dated March 5, Coinbase highlighted the plea, which is a part of their ongoing legal battle with the Securities and Exchange Commission (SEC) of the United States.

The SEC's previous categorization of cryptocurrency sales in the secondary market as securities contracts, as highlighted in the SEC v. Wahi case, Michael Savitt, representing Coinbase, argued, lacked significant support because it was never fully examined in court.

This legal mess began in July 2022 when the SEC filed a lawsuit against Ishan Wahi, a former product manager for Coinbase, along with his brother Nikhil Wahi and their buddy Sameer Ramani. The case concerned claims of insider trading involving nine different cryptocurrencies.


The Wahi defendants argued that the disputed tokens did not qualify as "investment contracts" and were therefore outside the purview of the SEC in their attempt to have the charges dropped. Among the parties that filed briefs in favor of this dismissal was Coinbase.

The SEC and the Wahi brothers did, however, reach a settlement in June 2023 that was described as a "zero-dollar, no-admit-no-deny" arrangement prior to any decision being made regarding the dismissal. After that, the SEC obtained a default judgment against Ramani, who did not raise a defense and thereby conceded the SEC's position that the cryptocurrency assets in question were "investment contracts."
 

Savitt, the lawyer for Coinbase, challenged the ruling against Ramani, claiming it shouldn't be regarded as a precedent because it was made without a meaningful legal discussion. According to Savitt, the Wahi order was obtained against an empty chair, and its reasoning reflects that. This highlights the necessity of discounting the default decision in the ongoing procedures.

This legal action was taken by Coinbase in response to the SEC's attempt on March 4 to use the Wahi insider trading case's verdict to undermine Coinbase's position by emphasizing that the tokens had been designated as securities at the time of the court's ruling.
 

The Howey test, a set of standards derived from a 1946 Supreme Court decision, is one of the topics of discussion in the ongoing exchanges between Coinbase and the SEC regarding whether or not cryptocurrency assets exchanged on Coinbase's platform qualify as securities.

The SEC charged Coinbase with breaking federal securities laws in June 2023 after it listed 13 tokens that it claimed were securities.

Coinbase is now requesting a court order to have the SEC's action dismissed, casting doubt on the agency's ability to regulate cryptocurrency exchanges.

Even while Bitcoin has been classified as a commodity since 2015, other cryptocurrencies' regulatory status is still unclear, which poses significant difficulties for centralized exchanges.

The SEC has stepped up its regulatory actions against cryptocurrency companies, accusing them of unregistered securities offers or sales, under the direction of Jay Clayton and Gary Gensler. The glacial pace of legislative development regarding cryptocurrency regulation has resulted in heightened scrutiny for companies like Ripple, Binance, and Coinbase from the regulatory body.