Judge Katherine Polk Failla of the US District Court of the Southern District of New York ruled that the US Securities and Exchange Commission (SEC) and Coinbase lawsuit can proceed. The SEC’s case against Coinbase alleges that the exchange operates as an unregistered securities exchange, broker, and clearing agency. Judge Failla declared that the SEC’s lawsuit against Coinbase held “plausible” ground and instructed both parties to submit a case proceeding plan by April 19. She dismissed many of Coinbase’s arguments in the filing but granted a partial victory to the exchange against the regulator by dismissing the claims against Coinbase’s Wallet.
The SEC alleged in June 2023 that Coinbase allowed trading of at least 13 crypto tokens that should have been registered as securities and failed to register its crypto asset’s offer and sale “staking-as-a-service program.” The US Securities Act of 1993 defines securities as financial instruments like stocks, bonds, debentures, and investment contracts, designed to protect investors by regulating their offering and sale. Coinbase argued that crypto assets do not meet the Securities Act definition of an investment contract, a stance shared by many in the crypto community. Coinbase’s $1 billion bond sale for “qualified institutional buyers” to raise capital will be due in 2030.
The ruling by Judge Failla is seen as a significant win for the SEC’s regulatory authority over the crypto sector. Reports suggest that the agency could increase enforcement and crypto regulation actions in 2024. Coinbase Chief Legal Officer Gurbir Grewal expressed the exchange’s resolve to defend itself in court and mentioned that they were prepared for the court’s decision. He stated that they look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation, expressing confidence in their legal arguments and eagerness for the opportunity to take discovery from the SEC for the first time.
The court ruling allows the SEC’s case against Coinbase to move forward on most claims, while claims against Coinbase Wallet were dismissed. This decision has implications for both Coinbase and the SEC in their ongoing legal battle. The exchange will now have the opportunity to present its case and defend its position in court, while the SEC will continue its efforts to regulate the crypto sector and enforce securities laws. The outcome of this lawsuit will likely have far-reaching effects on how cryptocurrency exchanges operate and comply with regulatory requirements in the future. Both parties are gearing up for the next phase of litigation as they navigate the complexities of the legal system and strive to uphold their respective positions in this high-profile case.
