Coinbase Asks Court to Dismiss SEC Case Against Cumberland

San Francisco-based exchange Coinbase has filed an Amicus Brief supporting crypto market maker Cumberland’s motion to dismiss the SEC lawsuit. 

Paul Grewal, Coinbase’s Chief Legal Officer (CLO), called the public’s attention to the filing today. He noted that the exchange filed an amicus brief in support of Cumberland DRW in its case against the SEC. 

Coinbase Wants SEC Case Against Cumberland Dismissed 

The Coinbase CLO provided an insight into the exchange’s Amicus Brief via an X post. Coinbase referred to Cumberland as another victim of the SEC’s enforcement-first strategy. According to Grewal, this approach saw the SEC rely on untested and novel legal representations, creating confusion in the crypto market regarding what is legal. 

Coinbase believes the SEC case against Cumberland should be dismissed, citing the regulator’s harmful overreach, inconsistent theories, and failure to provide transparent and fair regulations for the industry. 

He noted that the SEC’s new leadership, led by Mark Uyeda, has already acknowledged that the previous enforcement approach within the crypto market was flawed, putting crypto-related companies in difficult positions. 

SEC Claims Against Cumberland 

For context, the SEC charged Cumberland DRW last year with operating as an unregistered securities dealer. The regulator alleged that the market maker bought and sold crypto assets deemed unregistered securities. Some of these assets include Cosmos (ATOM), Solana (SOL), Filecoin (FIL), Algorand (ALGO), and Polygon (POL). 

It also alleged that Cumberland promoted some of these investments, citing ATOM as a case in point. Per an October filing, the SEC requested disgorgement of proceeds and a permanent injunction against Cumberland. 

In response, Cumberland asserted it would not change its business operations due to the SEC charges. Meanwhile, the market maker filed a motion in an Illinois district court, asking the court to dismiss the SEC lawsuit. 

Coinbase’s Amicus Brief in SEC v. Cumberland 

Interestingly, Coinbase filed an Amicus Brief yesterday, supporting the company’s motion to dismiss. According to the brief, the SEC’s inconsistent theories and unclear rules have trapped the crypto industry in a catch-22 situation. 

Coinbase noted that the SEC, which initially claimed limited authority over the crypto space, is now claiming broad authority, contravening securities laws. 

The exchange criticized the securities agency for failing to explain how crypto-related firms can comply with these laws. It argued that the SEC has blatantly refused to provide clarity through rulemaking. 

Effectively, Coinbase asked the court to consider its legal arguments and dismiss the SEC lawsuit against Cumberland. 

SEC and Coinbase Legal Tussles 

Notably, the SEC and Coinbase have not been best friends amid various lawsuits over the past few years. 

In 2023, the SEC charged Coinbase with violating federal securities laws by operating as an unregistered securities exchange and facilitating the trading of crypto assets deemed as securities.

A federal court recently granted the exchange’s request to pursue an interlocutory appeal to determine whether an investment contract requires an actual contract. 

Also, the U.S. Court of Appeals for the Third Circuit gave Coinbase a partial victory in its rulemaking petition against the SEC. The decision requires the SEC to explain why it denied Coinbase’s requests for rulemaking.