Oregon AG Fights Coinbase's Federal Court Transfer Bid

Oregon's Attorney General has taken a firm stance against crypto exchange Coinbase's attempt to transfer a securities violation lawsuit to federal court. This move marks the latest development in the ongoing debate between state and federal crypto enforcement. The Attorney General, Dan Rayfield, filed a motion on Tuesday requesting that a federal judge remand the case back to Multnomah County, where it was originally filed in April. The motion argues that the case is fundamentally a state law action and should be adjudicated in the state court where it was initially filed. Coinbase's arguments for removal are dismissed as a "removal gambit" and the claims of a "regulatory land grab" are described as rhetoric that overlooks nearly a century of shared state and federal securities enforcement.

The lawsuit, filed by Oregon Attorney General Dan Rayfield in April, accuses Coinbase of violating state securities law by promoting the sale of cryptocurrencies as unregistered securities to Oregon residents. The state alleges that Coinbase has earned millions of dollars in fees while Oregonians have faced significant losses in a market that is stacked against them. The motion highlights that for many individuals, the damages may be too small to make individual suits practical, especially given Coinbase’s user agreement, which includes arbitration and class action waivers.

The legal dispute hinges on a fundamental difference between state and federal securities law. Even if a crypto asset does not qualify as a security under the federal Howey test, it can still be classified as a security under Oregon's state-level legal standard, known as the Pratt test. This standard, established in the 1976 Oregon Supreme Court case Pratt v. Kross, broadens the Howey standard by focusing on whether investors are led to expect profits primarily from the efforts of others, even if they are also somewhat involved. This makes it easier for Oregon to classify schemes as securities.

Coinbase removed the case to federal court in June, arguing that the state law claims purportedly turn on a substantial question of federal law. However, Oregon's motion contends that this argument fails because the state applies its own "modified" legal test that differs significantly from federal standards. Coinbase has dismissed the lawsuit as politically motivated, with the exchange's chief legal officer claiming that the Oregon AG is pursuing a patchwork of state regulation that only helps politicians and harms consumers.

The motion also accuses Coinbase of working closely with crypto issuers to list their tokens on the Coinbase platform and promote them, facilitating their sale to the public. Oregon has requested attorney fees and costs, noting that Coinbase lacked an objectively reasonable basis for seeking removal. The legal partner at Web3 consulting firm Coinque Consulting, Navodaya Singh Rajpurohit, noted that if all states start to interpret what qualifies as an investment contract, it would cause a disastrous effect on the whole industry and could certainly undermine the SEC's role. However, he also pointed out that state courts remain bound by their own Supreme Court precedents, meaning the Oregon District Court may have to interpret 'investment contract' as per Pratt vs Kross.