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A United States district judge in New York has permitted the Securities and Exchange Commission to continue with its legal action against Coinbase Inc.
A federal judge in New York has ruled that the US Securities and Exchange Commission can proceed with its lawsuit against Coinbase Inc., the largest US cryptocurrency trading platform. The lawsuit alleges that Coinbase failed to register as a securities business.
SEC Vs Coinbase: The story began in January
In January, Coinbase and the SEC had oral arguments over the exchange’s dismissal motion, which claimed that the SEC has no authority over crypto exchanges unless Congress says so. Moreover, in the middle of March this year, a legal challenge asserted that the regulator had failed to regulate crypto correctly. However, it is not directly linked to Coinbase’s ongoing court battle with the SEC.
The Accusation By SEC
The Securities and Exchange Commission accused Coinbase of running an unregistered exchange that lists unregistered crypto securities illegally. Additionally, to protect retailers, the SEC likes to have everything bought and sold over an exchange under its regulation. However, it is also true that the number of scams in the crypto market may be bothering the government.
SEC’s Partial Victory in the Battle
US District Judge Katherine Polk Failla said in her opinion Wednesday that the SEC adequately alleged that Coinbase engages in the “unregistered sale and offer of securities” and illegally operates as an exchange, a broker, and a clearing agency under federal securities laws.
Coinbase, Kraken, Binance, and others argue in motions to dismiss SEC lawsuits against them that the SEC did not have the authority to change course, as it required approval from Congress. Moreover, the coin base posted that if the SEC insists on moving forward without congressional authorization, that decision must be made and implemented through prospective rulemaking.
Coinbase’s appeal against the SEC’s rulemaking denial is a separate court dispute from the SEC’s June 2023 lawsuit against Coinbase, which alleged that it operated as an unlicensed exchange and offered unregistered securities. However, the court agreed to toss the claim that the exchange acted as an unregistered broker via its Wallet application.
US District Court Judge Katherine Polk
US District Court Judge Katherine Polk Failla previously questioned the agency’s interpretation of the law during a hearing. However, Failla denied the defendant’s motion, citing the SEC’s sufficient pleading that Coinbase operates as an exchange, broker, and clearing agency under federal securities laws.
Bloomberg analyst Elliot Stein had estimated a 70% probability of Coinbase prevailing in the regulator’s lawsuit, but the court’s decision came as a surprise.
Following the court’s decision, both parties are now gearing up for a discovery phase. Paul Grewal, chief legal officer at Coinbase, clarified that his company was prepared for the setback.
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
He wrote on X that they look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation. At press time, Coinbase shares are down more than 3.79%.
Summary
Under federal securities laws, Coinbase has been accused of illegally operating as an exchange, broker, and clearing agency. The court rejected the claim that the exchange acted as an unregistered broker via its Wallet application. Therefore, it resulted in the partial winning of SEC and further resulted in the decline of Coinbbase stock by over 3%.
Disclaimer
The views and opinions stated by the author or any people named in this article are for informational purposes only. They do not establish financial, investment, or other advice. Investing in or trading in stocks, cryptos, or other related indexes comes with a risk of financial loss.
Amanda Shinoy is one of the few women in the space invested knee-deep in crypto. An advocate for increasing the presence of women in crypto, she is known for her accurate technical analysis and price prediction of cryptocurrencies. Readers are often waiting for her opinion about the next rally. She is a finance expert with an MBA in finance. Quitting a corporate job at a leading financial institution, she now engages herself full-time into financial education for the general public.
