Home Markets SEC Scores Big Victory in Lawsuit Against Cryptocurrency Exchange Coinbase

SEC Scores Big Victory in Lawsuit Against Cryptocurrency Exchange Coinbase

by SuperiorInvest

In this illustration taken June 8, 2023, a smartphone with the Coinbase logo and a representation of cryptocurrency is placed on a keyboard.

Ruvic Dice | Reuters

The Securities and Exchange Commission scored a major victory in its lawsuit against Coinbase on Wednesday, when a judge ruled that his claim that the cryptocurrency exchange engaged in unregistered sales of securities could be heard by a jury at trial.

Coinbase shares fell about 2.5% following news of the Manhattan federal court ruling rejecting its attempt to dismiss the SEC complaint.

The regulator first filed a lawsuit against Coinbase in June, alleging that the company was acting as an unregistered broker and exchange. The agency also demanded that the company be “permanently restricted and prohibited” from continuing to do so.

In her ruling Wednesday, U.S. District Judge Katherine Polk Failla wrote: “The 'crypto' nomenclature may be recent, but the questioned transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years.”

“The Court finds that the SEC properly alleges that Coinbase, through its Staking Program, engaged in the unregistered offer and sale of securities,” Failla wrote.

Elsewhere in that ruling, the judge agreed to dismiss the SEC's claim in the lawsuit that Coinbase acted as an unregistered broker by making its Wallet app available to customers.

The company responded to CNBC's request for comment with a link to a series of posts on social media platform by Coinbase Chief Legal Officer Paul Grewal.

“We were prepared for this and look forward to finding out more about the SEC's internal views and debates over cryptocurrency regulation,” Grewal wrote.

Later Wednesday, the SEC filed notice of Failla's decision in the Coinbase case in the docket of a lawsuit it has pending in federal court in the District of Columbia against Binance, another major cryptocurrency exchange. In that lawsuit, the SEC accuses Binance of conducting multiple unregistered offers and sales of cryptoasset securities.

News of Wednesday's decision comes as Coinbase takes a larger role in Wall Street's adoption of cryptocurrencies.

In January, the SEC approved a number of US spot bitcoin exchange-traded funds. Many of these ETFs have partnered with Coinbase as their custodial partner.

These American spot funds have seen record inflows since their launch in January. Together, they have raised around $52 billion.

In June, SEC Chairman Gary Gensler said on CNBC that trading platforms like Coinbase “call themselves exchanges” but “combine a number of functions.”

“We don't see the NYSE operating a hedge fund,” Gensler said at the time.

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