The U.S. Securities and Exchange Commission (SEC) has received support from the North American Securities Administrators Association (NASAA) over its legal actions against Coinbase.

In an Oct. 10 court filing, NASAA argued that nothing is inherently fraudulent about cryptocurrencies. However, the sector has greatly attracted fraudsters who prey on investors’ fear of missing out and their economic situations.

According to NASAA, the SEC’s argument that Coinbase violated securities law with its operation was consistent with the agency’s longstanding position about the industry, and the lawsuit was not “novel or extraordinary.” Consequently, the association urged the Court to reject the exchange’s argument against the SEC’s interpretation of securities.

“The Court should reject Coinbase’s attempt to narrow and misapply the established legal framework in order to avoid being subject to the same regulatory obligations as all other participants in the Nation’s securities markets.”

NASAA is a nonprofit association of state, provincial, and territorial securities regulators in the United States, Canada, and Mexico.

Howey test

Similarly, NASAA criticized Coinbase’s interpretation of the Howey Test regarding the emerging industry.

The Howey test is a legal benchmark employed within the United States to determine if a transaction qualifies as an investment contract and thus falls under the security category as per federal law.

This test asserts that for a transaction to be classified as a security, it must involve an investment of funds within a collective endeavor, with the expectation of profit from the group’s effort.

Per Coinbase, the Howey test requires products to possess formal “contractual undertakings” between the buyer and seller. The exchange also argued that investors must share directly in the profits, income, or assets of the issuer’s business.

However, NASAA noted that “these are not, and have never been, required elements to find an investment contract. The Court should decline to read these new requirements into the Howey test.”

The SEC filed its case against Coinbase in June, alleging that the company violated federal securities law with its operations. However, the exchange has doubled down on its effort to have the case dismissed and has enjoyed support from notable stakeholders like Senator Cynthia Lummis and other U.S. lawmakers.