SEC’s Terraform ruling provides implications for handling the Coinbase case

SEC's Terraform ruling impacts Coinbase case handling.

Author: JESSE COGHLAN, COINTELEGRAPH; Translation: Song Xue, LianGuai

The recent filing submitted by the U.S. Securities and Exchange Commission (SEC) in the lawsuit against cryptocurrency miner Green United may reveal how it handles the case against Coinbase.

On July 31, District Judge Jed Rakoff denied Terraform Lab’s motion to dismiss the case, rejecting its argument based on the “materiality” principle, and SEC subsequently won the case.

The so-called cryptocurrency miner Green United also used the same argument in its motion to dismiss and this is also the core argument of the cryptocurrency defendant in the case against SEC, including the case from cryptocurrency exchange Coinbase.

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However, in the filing submitted on August 4, SEC stated that the recent ruling by Terraform Labs provided additional authority to reject Green United’s arguments on materiality and fair notice defense.

The SEC’s letter stated, “The court rejected defendants’ argument that the ‘materiality’ and ‘due process’ provisions prevent the SEC from charging the company’s digital assets as ‘investment contracts’.”

“Therefore, Terraform Labs is relevant to this matter as it provides additional authority to reject defendants’ arguments on materiality and fair notice,” it added.

The SEC’s latest arguments may reveal how it handles Coinbase’s own motion to dismiss, which was also submitted on August 4.

In Coinbase’s motion to dismiss the SEC lawsuit, the cryptocurrency exchange argued that the SEC applied the materiality principle when attempting to regulate the secondary market for cryptocurrency transactions.

The materiality principle was established in a Supreme Court ruling in 2022, outlining that Congress intends to make policy decisions and not delegate authority to agencies — whose regulatory powers require explicit authorization from the legislature.

The judge in the SEC v. Terraform case argued that Terraform “cannot wield principles intended to apply in exceptional circumstances as a tool to undermine the routine work Congress expected the SEC and other administrative agencies to perform.”

The SEC has previously relied on other rulings in similar cases to support its arguments.

In April of this year, it sent a letter to the presiding judge in the SEC v. Ripple Labs case, emphasizing the judge’s choice in its successful litigation, which is considered a longstanding court precedent providing sufficient fair notice.

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