Jai Sahu
On March 27, Judge Katherine Polk Failla of the US District Court for the Southern District of New York decided the legal battle between the US Securities and Exchange Commission (SEC) and Coinbase can move forward.
The judge’s verdict was delivered following Coinbase’s attempt to have the SEC’s lawsuit dismissed. This lawsuit claims the exchange is operating without the necessary registrations for a securities exchange, broker, and clearing agency.
Coinbase’s Legal Battle Seen as “Feasible” by Judge Failla
Judge Failla found the SEC’s case against Coinbase to be credible, ordering both parties to plan the next steps of the case by April 19.
“The Court concludes that the SEC has adequately argued that Coinbase functions as an exchange, a broker, and a clearing agency according to federal securities law, and participates in the unlicensed offering and selling of securities through its Staking Program,” the court’s statement indicated.
Judge Failla rejected several of Coinbase’s defense points but sided with the exchange on one issue, ruling against the SEC’s accusations related to Coinbase’s Wallet.
She stated that the regulator’s allegations “do not succeed because the accusations do not sufficiently show that Coinbase serves as a “broker” by providing Wallet to its users.”
This development stems from the SEC’s June 2023 lawsuit against the cryptocurrency exchange, where it was alleged that Coinbase facilitated the trade of at least 13 crypto tokens that ought to have been recognized as securities and did not register the offering and sale of its crypto assets’ “staking-as-a-service program.”
Implications of the US Securities Act on Coinbase’s Legal Challenge
The US Securities Act of 1993, which identifies securities as financial instruments like stocks, bonds, and investment contracts, aims to oversee the sale and offering of these instruments to safeguard investors.
Coinbase maintains that, unlike traditional securities, cryptocurrency assets do not fit the definition of an investment contract. This stance is echoed by many within the cryptocurrency sector. It’s noteworthy that Coinbase’s initiative to raise capital through a $1 billion bond sale for “qualified institutional buyers,” set to mature in 2030, was mentioned as part of their argument.
This scenario marks a significant enforcement win for the SEC in its oversight of the cryptocurrency industry, with indications that the agency might intensify its regulatory efforts in 2024.
Coinbase’s Chief Legal Officer, Gurbir Grewal, communicated via X about the recent decision and the company’s commitment to defending its position in court.
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
“Looking ahead, we remain confident in our legal arguments, we look forward to proving we’re right, we are eager for the opportunity to take discovery from the SEC for the first time, and we appreciate the Court’s continued consideration of our case,” he said.