SEC scores big win in lawsuit against crypto exchange Coinbase

The

Securities
and
Exchange
Commission
scored
a
major
win
in
its
lawsuit
against


Coinbase
on
Wednesday,
as
a
judge

ruled
that
its
claim
that
the
cryptocurrency
exchange
engaged
in
unregistered
sales
of
securities
could
be
heard
by
a
jury
at
trial.

Coinbase’s
shares
fell
around
2.5%
on
news
of
the
ruling
in
Manhattan
federal
court
rejecting
its
bid
to
dismiss
the
SEC’s
complaint.

The
regulator
first

filed
suit
against
Coinbase in
June,
alleging
the
company
was
acting
as
an
unregistered
broker
and
exchange.
The
agency
also
demanded
the
company
be “permanently
restrained
and
enjoined”
from
continuing
to
do
so.

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

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

The
judge
elsewhere
in
that
ruling
agreed
to
dismiss
the
SEC’s
claim
in
the
lawsuit
that
Coinbase
acted
as
an
unregistered
broker
by
making
its
Wallet
application
available
to
customers.

The
company
responded
to
CNBC’s
request
for
comment
with
a
link
to
a

series
of
posts
on
social
media
platform
X
by
Coinbase’s
chief
legal
officer,
Paul
Grewal.

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

The
SEC
later
Wednesday
filed
a
notice
of
Failla’s
decision
in
the
Coinbase
case
on
the
docket
of
a
lawsuit
it
has
pending
in
federal
court
in
the
District
of
Columbia
against
Binance,
another
major
cryptocurrency
exchange.
The
SEC
in
that
suit
accuses
Binance
of
making
multiple
unregistered
offers
and
sales
of
crypto
asset
securities.

Wednesday’s
decision
news
comes
as
Coinbase
takes
on
a
bigger
role
in
Wall
Street’s
adoption
of
cryptocurrency.

In
January,
the
SEC
approved
a
raft
of
U.S.
spot
bitcoin
exchange-traded
funds.
Many
of
these
ETFs
have
partnered
with
Coinbase
as
their
custody
partner.

These
U.S.
spot
funds
have
seen
record
flows
since
launching
in
January.
Collectively,
they
have
brought
in
around
$52
billion.

In
June,

SEC
Chair
Gary
Gensler
said
on
CNBC
that
trading
platforms
like
Coinbase “call
themselves
exchanges”
but
were “commingling
a
number
of
functions.”

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