Coinbase Denied Motion To Dismiss SEC Lawsuit

A US court dealt a significant setback to Coinbase when the judge sided with the Securities and Exchange Commission, denying Coinbase’s attempt to throw out the case.

Based on the judge’s decision, a jury could consider the Securities and Exchange Commission’s argument that Coinbase sold unregistered securities during a trial.

Big Win For The SEC 

US District Judge Katherine Failla’s ruling paves the way for the Securities and Exchange Commission (SEC) to proceed with its case against Coinbase. The SEC alleges that Coinbase functions as an unregistered securities exchange, brokerage, and clearing house. According to court papers from March 27th, [this/these allegation(s)] stand(s) uncontested.

According to the Court, the SEC has provided enough evidence for the following: Coinbase functions as an exchange, broker, and clearing house under US securities regulations. Through its Staking Program, Coinbase is allegedly involved in the unregistered trading of securities.

In June, the Securities and Exchange Commission accused Coinbase of breaking federal securities laws by listing 13 tokens it deems as securities without approval. The commission requested a permanent ban on Coinbase from continuing this practice. Coinbase countered that these transactions don’t fall under the definition of financial securities, making them beyond the jurisdiction of the SEC. However, the SEC maintains that some of these transactions might be considered investment contracts.

“Transactions on Coinbase’s platform and associated services may be considered ‘investment contracts’ under federal securities law, which have been deemed securities for a long time. It is acknowledged by all parties that the possibility of legal action depends on this disagreement over their classification.”

Judge Supports SEC Claim

In her decision, Judge Failla pointed out that deals resembling the one at hand have been classified as securities transactions before. Consequently, Coinbase’s attempt to discard the case was rejected by the judge.

The term “crypto” may be new, but the disputed transactions fit well within the court’s established framework for identifying securities, which has been in use for nearly eight years. The court believes that the SEC has provided sufficient evidence to charge Coinbase with conducting unregistered sales of securities through its Staking Program.

The court additionally disapproved of the unregistered status of the cryptocurrency platform with the securities regulatory body.

Based on the detailed claims in the lawsuit, it is clear that the Court believes Coinbase acted as an unregistered broker-dealer for securities. Therefore, the defendants’ request to dismiss this SEC charge is not granted.

The SEC is happy with the recent court decision, as it upholds the long-standing method used by the commission to identify securities for almost 80 years. (Paraphrased)

Another court has ruled in agreement with our previous decisions, reaffirming that the concept of what constitutes a security hasn’t changed just because the term “crypto” is more recent. The true nature of a transaction is what determines if an offering is a security, not the labels used.

Coinbase Responds 

Through a sequence of tweets from Coinbase’s Chief Legal Officer, Paul Grewal, the company expressed its readiness for the court decision and eagerly anticipated engaging with the Securities and Exchange Commission (SEC) on the subject of cryptocurrency regulations.

Today, the Court has ruled that the majority of our SEC case will proceed with the charges, but the allegations against Coinbase Wallet have been dropped. We anticipated this outcome and are excited to delve deeper into the SEC’s perspective and decision-making process regarding cryptocurrency regulations.

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2024-03-28 13:10