SEC Claims Legal Victory in Coinbase Dispute

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  • The SEC secured a victory over Coinbase this week as the judge rejected the exchange’s attempt to dismiss the case
  • Judge Failla’s 84-page decision supported the SEC’s claim that Coinbase breached securities laws
  • Coinbase’s legal chief, Paul Grewal, remains confident of victory

The Securities and Exchange Commission (SEC) this week scored a victory over Coinbase when the judge overseeing the legal battle between the two rejected the exchange’s attempt to have the case dismissed. Judge Katherine Failla issued a comprehensive 84-page decision which supported the SEC’s contention that Coinbase had operated outside securities laws by offering cryptocurrency-related products without registering with the agency. In doing so, Judge Failla reaffirmed the SEC’s authority to regulate the crypto market and took the sector one step further toward the unknown.

Judge Rules for SEC on Major Points

The SEC sued Coinbase in June last year, accusing the company of five indiscretions ranging from the unlicensed sale of securities to publishing misleading comments over its need for registration. Coinbase filed to have the case kicked, arguing that the cryptocurrencies at the heart of the SEC charges are not investment contracts and are therefore not securities, meaning they do not come within the SEC’s purview.

Another key tenet of Coinbase’s case was the notion of “regulation by enforcement,” with the exchange arguing that the SEC’s approach constituted an unfair targeting of the crypto sector.

However, Failla rejected almost all of Coinbase’s arguments, broadly aligning with the SEC’s interpretation of securities laws and paving the way for a full trial, dismissing key arguments related to due process and reaffirming the SEC’s authority in regulating the crypto market. This decision deals a blow to Coinbase’s broader legal strategy, challenging its attempts to navigate the regulatory landscape.

Coinbase Remains Confident

Coinbase was able to score a minor victory as Judge Failla agreed to dismiss a specific allegation concerning its Wallet product, but overall it was a chastening day for the exchange, whose legal head, Paul Grewal, told investors last August that the exchange expected to win the lawsuit

Grewal remains confident of victory, however, as he expressed on X following the ruling:

Despite Ripple’s victory over the SEC last year and the awarding of multiple Bitcoin ETFs, it seems that the agency is creeping closer and closer toward its desire to have all cryptocurrencies other than Bitcoin labeled as securities and exchanges forced to register as securities brokers.