Key Insights
- A U.S. judge denied Coinbase’s motion to dismiss the SEC’s case alleging it operated as an unregistered exchange
- The judge ruled the SEC properly alleged Coinbase’s platform facilitated trading of investment contract securities
- However, one claim that Coinbase Wallet operated as an unregistered broker was dismissed by the judge
NEW YORK (MarketsXplora) – A U.S. judge has ruled that Coinbase must defend itself at trial against Securities and Exchange Commission allegations that the cryptocurrency exchange facilitated unregistered trading of dozens of crypto asset securities.
In a decision on Wednesday, U.S. District Judge Katherine Polk Failla in Manhattan denied a Coinbase motion to dismiss the bulk of the SEC case, which revolves around whether certain crypto transactions on Coinbase’s platform amounted to investment contracts under a long-standing legal test.
Today, the Court decided that our SEC case will move forward on most of the claims, but dismissed the claims against Coinbase Wallet. We were prepared for this, and we look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation. 1/6
— paulgrewal.eth (@iampaulgrewal) March 27, 2024
Judge Failla said the SEC had “sufficiently pleaded” that Coinbase operated as an unregistered exchange, broker and clearing agency by facilitating trades of crypto assets understood to be securities.
The judge also said the SEC had properly alleged Coinbase’s staking program, which generates crypto rewards for holding certain tokens, involved the unregistered sale of securities.
However, Failla dismissed one SEC claim that Coinbase acted as an unregistered broker through its separate Coinbase Wallet service.
The case stems from the SEC’s crackdown on crypto trading platforms amid concerns they are facilitating the trading of potentially billions of dollars of illegal securities in unregistered transactions.
Coinbase, one of the world’s largest crypto bourses, has denied the SEC claims and argued the agency has violated fair notice in regulating the digital asset industry through enforcement actions rather than formal rulemaking.
“Coinbase … make(s) much hay out of a position taken by SEC Chair Gary Gensler in his May 2021 Congressional testimony … Yet an examination of the broader timeline … reveals that the SEC provided Coinbase fair notice” on securities law compliance, Failla said.
The judge rejected Coinbase’s bid to dismiss the case on the basis that the SEC lacked clear authority from Congress to police the crypto sector under the “major questions” legal doctrine.
“(The) cryptocurrency industry ‘falls far short of being a ‘portion of the American economy’ bearing ‘vast economic and political significance,'” Failla wrote.
While the case will proceed to trial based on Failla’s denial of Coinbase’s dismissal motion, any final resolution and legal precedents are likely still years away given the litigation’s complexity and near-certainty of appeals.