SEC scores big win in lawsuit against crypto exchange Coinbase

A smartphone with the Coinbase logo displayed and a representation of cryptocurrencies is placed on a keyboard in this illustration taken June 8, 2023.

Dado Ruvic | Reuters

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

Shares of Coinbase fell about 2.5% following news of Manhattan federal court’s decision denying its request to dismiss the SEC’s complaint.

The regulator first filed a complaint 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 restrained and enjoined” from continuing to do so.

In her ruling issued Wednesday, U.S. District Judge Katherine Polk Failla wrote: “The ‘crypto’ nomenclature may be new, but the disputed transactions fit comfortably within the framework that courts have used to identify securities for nearly eighty years old.

“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.

In that ruling, the judge agreed to dismiss the SEC’s allegation in the lawsuit that Coinbase acted as an unregistered broker-dealer in 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 General Counsel Paul Grewal.

“We were prepared for this and look forward to learning more about the SEC’s internal opinions and crypto regulation discussions,” Grewal wrote.

Later Wednesday, the SEC filed a notice of Failla’s decision in the Coinbase case as part of an ongoing lawsuit in federal court in the District of Columbia against Binance, another major cryptocurrency exchange. In this suit, the SEC accuses Binance of making several unregistered offers and sales of crypto asset securities.

News of Wednesday’s move comes as Coinbase takes a larger role in Wall Street’s adoption of cryptocurrency.

In January, the SEC approved a series of bitcoin spot exchange-traded funds in the United States. Many of these ETFs have partnered with Coinbase as a custodial partner.

These American spot funds have seen record flows since their launch in January. Collectively, they brought in about $52 billion.

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

“We don’t see the New York Stock Exchange operating a hedge fund,” Gensler said at the time.

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