Coinbase To Face US Securities Regulator’s Lawsuit

A federal judge in Manhattan made a pivotal decision on Wednesday regarding the U.S. securities regulator’s lawsuit against Coinbase (COIN.O), signaling progress while also dismissing one of the agency’s claims against the prominent U.S. cryptocurrency exchange.

The ruling partially granted Coinbase’s motion to dismiss the Securities and Exchange Commission’s (SEC) lawsuit, which alleged violations of regulatory rules. 

Although the case can move forward, one specific claim made by the SEC was dismissed by Judge Katherine Polk Failla.

In response to the development, neither the SEC nor Coinbase immediately provided comments. 

This development marks a partial victory for Coinbase amidst what could potentially become a protracted and costly legal battle.

The SEC initiated legal action against Coinbase in June, contending that the exchange enabled trading of several crypto tokens without proper registration as securities. 

Furthermore, the SEC claimed that Coinbase operated unlawfully as a national securities exchange, broker, and clearing agency without appropriate registration.

Judge Failla allowed most aspects of the lawsuit to proceed, but she dismissed the SEC’s assertion that Coinbase acted as an unregistered broker via its wallet application.

This legal confrontation underscores the SEC’s efforts to enforce U.S. securities laws within the realm of digital asset companies. 

Drawing from a U.S. Supreme Court precedent, the SEC has been leveraging a test to determine whether certain investments qualify as securities, particularly focusing on whether returns are dependent solely on the efforts of others.

Coinbase has contested this characterization, arguing that cryptocurrencies, unlike traditional stocks and bonds, do not meet the criteria outlined by the SEC. This stance is widely supported within the cryptocurrency industry.

In previous legal battles, judges have predominantly sided with the SEC, affirming that the crypto assets in question indeed qualified as securities. 

Unlike commodities, securities are subject to strict regulations, requiring registration with the SEC by their issuers and comprehensive disclosures to investors to outline potential risks.