Digital asset firm Coinbase (NASDAQ:COIN) will have to face the Securities and Exchange Commmission’s (SEC) lawsuit, a Judge has recently ruled.
A federal judge in Manhattan on Wednesday (March 27, 2024) stated that the US SEC’s lawsuit against Coinbase may proceed.
However, the presiding judge dismissed one claim the regulator had made against the largest US-based crypto exchange.
As reported by Reuters, US District Judge Katherine Polk Failla partially granted Coinbase’s motion to dismiss the regulatory agency’s ongoing lawsuit, which stated that the firm was intentionally ignoring applicable rules and guidelines.
Although the decision may be considered somewhat of a partial win for Coinbase in what might be a fairly lengthy and costly court case, it mostly supports the SEC’s controversial approach to crypto and agrees with other Judges who have supported the regulator’s stance.
Coinbase Chief Legal Officer Paul Grewal stated via social media that the digital asset exchange is ready for the ruling and will keep challenging/fighting the SEC’s assertions. He added that it was a victory in part as claims against the Coinbase wallet were dismissed.
An SEC rep stated the regulatory agency was pleased that yet another court “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.”
They added that they “will continue to protect investors against risks in the crypto markets when, as here, the securities laws are implicated.”
The SEC had filed a lawsuit against Coinbase back in June, alleging that the company had facilitated trading of at least 13 cryptocurrency tokens that needed to be registered as securities and had been operating illegally as a national securities exchange, broker and clearing agency. That’s because Coinbase had been doing this type of business without registering with the SEC, the regulatory explained.
Failla has now allowed most of the lawsuit to move forward, however, they dismissed the regulator’s assertion that Coinbase served as an unregistered broker through its wallet app.
The case against Coinbase is considered to be a prominent example of the SEC’s efforts to apply US securities law to crypto firms.
In order to do this, the regulatory authority has mostly depended on a US Supreme Court ruling that established a test for when an investment is considered to be a security.
An important aspect is whether returns “come solely from the efforts of others.”
Coinbase has said that crypto-assets, unlike more traditional stocks and bonds, do not fit this particular definition, which is unsurprisingly the view held by most in the crypto and blockchain sector.
Notably, Failla has rejected that line of argument, noting that the SEC has a reasonable assertion that at least some of the crypto-assets listed on the exchange do qualify as securities.
The SEC has also referenced assertions of various developers, such as Solana Labs, regarding efforts to implement and enhance their tech.
Failla noted that “an objective investor in both the primary and secondary markets would perceive these statements as promising the possibility of profits solely derived from the efforts of others.”
In the relatively small number of cases that have actually moved to court, judges have, for the most part, agreed with the regulator that crypto-assets at issue are actually securities.
But like assets such as commodities that are quite tightly regulated, securities need to be registered with the SEC by their issuer.
Furthermore, they need extensive disclosures in order to inform investors of associated risks properly.
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
