SEC Struggles to Argue Beanie Babies Are Not Securities – Crypto Lawyers

The U.S. securities regulator failed to properly distinguish between beanie babies and securities at a recent hearing in New York — one of the few signs Coinbase has a good shot at defending it, according to lawyers.

The crypto exchange is trying to get a lawsuit from the US Securities and Exchange Commission (SEC) dismissed in a New York court, with oral arguments recently scheduled for a five-hour hearing on January 17.

Reflecting on the proceedings in a post on X (formerly Twitter), Jeremy Hogan, a partner at the law firm of Hogan & Hogan, said that Judge Kathryn Polk-Faila, one of the trial's chambers, would file a class-action lawsuit against the agency's attempt to determine warrants. A seller of Beanie Babies.

According to Hogan, the regulator then tried to separate Beanie Baby from the securities to the judge but “mostly failed because the truth is that for the SEC, Beanie Baby is a security.”

Judge Fayla (statement): “SEC security probe leads to class action lawsuit against Benny Babies seller.”

The SEC then tries to identify Beanie Babies, and mostly fails because the truth is for the SEC, Beanie Baby is safe.

— Jeremy Hogan (@attorneyjeremy1) January 17, 2024

“Today [Coinbase] The hearing exposed a key flaw in the SEC's legal theory: it turns almost every asset on the planet into a security,” said Jake Chervinsky, head of legal at crypto venture capital firm Variant.

According to Chervinsky, Fayla appears to see it the same way after describing the situation as “an SEC-controlled conglomerate.”

2/ Judge Faila seems to have found this flaw very well:

“I was offered an SEC-regulated portfolio,” she says.

She is right. The SEC's theory gives it jurisdiction over sneakers, trading cards, watches—basically anything with market value.

— Jake Chervinsky (@jchervinsky) January 17, 2024

“After hours and hours, this much remains clear: The SEC will continue to claim broad jurisdiction over all investments, even without any restrictions on the definition of investment contracts,” said Paul Grewal, head of legal affairs at Coinbase, in a Jan. 18 post on X.

Lawyers do not believe in the doctrine of the main questions

Meanwhile, part of the hearing was devoted to arguments over the major questions doctrine — a 2022 U.S. Supreme Court decision requiring agencies to delegate authority to Congress in certain cases. Many crypto firms, including Coinbase, have tried to use this as a reason to dismiss their own SEC lawsuits.

However, in a Jan. 17 X post, securities attorney James Murphy appeared uncomfortable with the idea of ​​Fayla dismissing the case based on the Supreme Court's decision.

On the other hand, Chervinsky said the judge “noted the problems with the SEC's case” in Sen. Cynthia Lammis' amicus brief, which outlines her argument for Coinbase's rejection of how to control the current debate in Congress.

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Fayla closed the hearing by making it clear that she would not rule on Coinbase's dismissal request that day. She may offer a partial dismissal.

“My guess (and it's just a guess) is that she'll let the matter go to discovery as in Ripple's case,” Murphy said.

He predicts that Filea will rule on the motion to dismiss within the next three months and that Coinbase will “ultimately win the case.”

The SEC did not immediately respond to Cointelegraph's request for comment.

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