Coinbase contends that the SEC is attempting to bypass the Howey test by not addressing whether digital asset transactions without post-sale obligations qualify as investment contracts. This claim was made in a motion for an interlocutory appeal filed with the US District Court for the Southern District of New York on May 24. The appeal challenges a recent court order concerning a key legal issue in Coinbase's ongoing case with the SEC.

The appeal focuses on whether digital asset transactions without post-sale obligations can be considered “investment contracts” under the Howey test, which defines securities. The district court's decision on March 27 addressed this novel legal question, with significant implications for the crypto market. Coinbase argues that no appellate court has yet determined if a digital asset transaction without post-sale contractual obligations can be an investment contract, making this issue crucial for the digital asset industry and warranting immediate appellate review.

Coinbase pointed out that the SEC ignores the fact that in the 78 years since the Howey decision, no appellate court has found an investment contract without post-sale obligations. The SEC opposes the motion, arguing that the court's order does not involve a controlling question of law and lacks substantial grounds for a difference of opinion. Coinbase, however, claims the decision conflicts with established precedents, including the SEC v. Ripple Labs, Inc. case, which ruled that certain digital asset transactions did not meet the Howey criteria.

Additionally, Coinbase criticized the SEC for conflating the Ripple case with Terraform Labs, highlighting the court-recognized split between these cases. A successful appeal could lead to the dismissal of significant portions of the SEC's case against Coinbase, particularly those related to its platform and Prime services, which constitute more than 70% of the complaint. Addressing the legal question on appeal could streamline the litigation and reduce resource expenditure.

The SEC has imposed extensive discovery requirements on Coinbase, including numerous document requests, third-party subpoenas, and inspection requests. Resolving this foundational legal issue through an appeal could save judicial and party resources. The case's outcome may define the SEC's authority over digital asset transactions as the crypto industry faces increased regulatory scrutiny. Coinbase seeks to expedite appellate review to provide essential clarity and guidance for the industry.