SEC can proceed with Coinbase lawsuit: court ruling

Coinbase's motion to drop the SEC's case against the exchange was denied in court, allowing the regulator to proceed with its lawsuit.

A United States court has denied Coinbase‘s motion to dismiss the United States Securities and Exchange Commission’s (SEC) case against the exchange.

The decision, made by U.S. District Judge Katherine Failla, allows the SEC to pursue its lawsuit against Coinbase, which alleges that the exchange operates as an unregistered exchange, broker, and clearing agency, according to March 27 court documents, that state:

“The Court finds the SEC has sufficiently pleaded that Coinbase operates as an exchange, as a broker, and as a clearing agency under the federal securities laws, and through its Staking Program engages in the unregistered offer and sale of securities.”

The SEC sued Coinbase in June 2023 alleging that the crypto exchange violated federal securities laws by listing 13 tokens it alleged were securities. The firm was seeking an order to drop the case, questioning the SECs authority over crypto exchanges.

Coinbase argued that the transactions facilitated on its platform do not qualify as financial securities and thus fall outside the SECs purview. However, the regulator argues that at least some of those transactions constitute investment contracts:

“At least some of the transactions on Coinbases platform and through related services constitute ”investment contracts,“ which the federal securities laws have long recognized as securities. The parties readily acknowledge that the viability of enforcement action hinges on this difference of opinion.”

The court denied Coinbase's motion to dismiss the case, arguing that similar transactions have previously been considered securities transactions:

“As explained herein, 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 eight years.

The court also cited Coinbases lack of registration with the securities regulator:

“The Court concludes that because the well-pleaded allegations of the Complaint plausibly support the SEC‘s claim that Coinbase operated as an unregistered intermediary of securities, Defendants’ motion must be denied.”

The two parties were ordered to submit a “proposed case management plan” by April 19, according to the court documents.