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SEC’s Case Against Coinbase Could Be Thwarted by Pokémon Cards, Says Coinbase CLO

Last Updated January 23, 2024 11:06 AM
Teuta Franjkovic
Last Updated January 23, 2024 11:06 AM

Key Takeaways

  • Coinbase CLO argues that Pokémon cards could challenge the SEC’s definition of securities.
  • Grewal argues that Pokémon cards, like certain tokens, are part of a larger ecosystem that contributes to their value.
  • Judge Polk Failla has expressed skepticism toward the SEC’s broadened definition of securities.

Paul Grewal, the Chief Legal Officer of Coinbase, posits that collectibles, such as Pokémon cards, could play a crucial role in challenging the broadened interpretation of securities by the U.S. Securities and Exchange Commission (SEC).

Grewal points out  that these cards, like certain tokens, are part of a larger ecosystem that contributes to their value. This aspect is seen by the SEC as a key factor in categorizing some tokens as securities.

Challenging SEC’s Security Definitions with Pokémon Card Analogy

Grewal recently brought up an intriguing comparison  involving Pokémon playing cards to question the SEC arguments in a legal dispute. This comparison emerged during the initial hearing of the case the SEC filed against Coinbase in June, where the exchange was accused of acting as an unregistered broker and violating various securities laws.

A key point of contention in the hearing was the definition of security, with both parties having differing views. Coinbase maintained that the tokens involved in the case (including ICP, AXS, CHZ, FLOW, DASH, VGX, FIL, NEXO, NEAR, ADA, SAND, SOL, and MATIC) are not securities, citing the absence of a formal contract between sellers and buyers in secondary markets. Conversely, the SEC broadened its interpretation by emphasizing the significance of an ecosystem supporting these tokens.

Grewal, however, counters this argument  by highlighting that ecosystems are not exclusive to tokens. By referencing the world of Pokémon cards, he implies that if such collectibles, which also have supporting ecosystems, are not classified as securities, then the same logic should apply to the tokens in question.

Judge: Are Collectibles Are Also Securities Then?

In the initial hearing, Judge Polk Failla expressed skepticism towards the SEC’s broadened definition of securities. She pointed out that such an expansive interpretation could potentially categorize even collectibles as securities, indicating concern over the implications of this approach.

Grewal reinforced this viewpoint by referencing an article  titled “Into the Not-So-Wild World of Pokémon.” This piece detailed how the Pokémon franchise, particularly its trading card game, evolved beyond its original audience to form a complex ecosystem.

According to the articl e :

“In each new game, Pokémon iterates on the ecosystem it invented before, making it more user-friendly and including new features that appeal to players.”

Grewal’s citation of this example underscores the argument that not only digital tokens but also collectibles like Pokémon cards can develop into ecosystems, challenging the SEC’s expanded securities definition.

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