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Coinbase Denied Motion To Dismiss SEC Lawsuit

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The United States Securities and Exchange Commission secured a major win in court after a judge ruled in its favor and denied Coinbase’s motion to dismiss. 

According to the judge’s ruling, the Securities and Exchange Commission’s claim that Coinbase engaged in the sale of unregistered securities could be heard by a jury at trial. 

Big Win For The SEC 

US District Judge Katherine Failla’s decision clears the path for the Securities and Exchange Commission to pursue its lawsuit against Coinbase. According to the commission, Coinbase operates as an unregistered securities exchange, broker, and clearing agency. Court documents from the 27th of March further state, 

“The Court finds the SEC has sufficiently pleaded that Coinbase operates as an exchange, as a broker, and as a clearing agency under the federal securities laws, and through its Staking Program engages in the unregistered offer and sale of securities.”

The Securities and Exchange Commission filed its lawsuit against Coinbase in June, alleging the platform violated several federal securities laws by allowing the listing of 13 tokens that it considers securities. The commission demanded that Coinbase be permanently restrained and enjoined from continuing to do so. Coinbase argued that the transactions on its platform do not qualify as financial securities and thus are outside the purview of the Securities and Exchange Commission. However, the SEC argued that at least some of the transactions could constitute investment contracts. 

“At least some of the transactions on Coinbase’s platform and through related services constitute ‘investment contracts,’ which the federal securities laws have long recognized as securities. The parties readily acknowledge that the viability of enforcement action hinges on this difference of opinion.”

Judge Supports SEC Claim

Judge Failla noted in her ruling that similar transactions have previously been considered securities transactions, denying Coinbase’s motion to dismiss. The judge stated in her ruling, 

“As explained herein, the ‘crypto’ nomenclature may be of recent vintage, but the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eight years. The Court finds that the SEC adequately alleges that Coinbase, through its Staking Program, engaged in the unregistered offer and sale of securities.”

The court was also critical of the cryptocurrency exchange’s failure to register with the securities regulator. 

“The Court concludes that because the well-pleaded allegations of the Complaint plausibly support the SEC’s claim that Coinbase operated as an unregistered intermediary of securities, Defendants’ motion must be denied.”

Speaking about the ruling, an SEC spokesperson stated that the commission was pleased with the ruling and that yet another court had confirmed that the framework used to identify securities for nearly 80 years still applies. 

“We’re pleased that yet another court has confirmed that, while the term ‘crypto’ may be relatively new, the framework that courts have used to identify securities for nearly 80 years still applies. It’s the economic realities of a transaction, not the labels, that determine whether a particular offering constitutes a security.”

Coinbase Responds 

Coinbase responded to the ruling through a series of tweets from the platform’s Chief Legal Officer, Paul Grewal. In them, Grewal stated that the company was prepared for this and looked forward to discovering the SEC’s views and discussions on crypto regulations. 

“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.”

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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