Judge Allows SEC’s Lawsuit Against Coinbase to Proceed, Dismisses Exchange’s Motion

In one of the most recent developments in the ongoing legal battle between the U.S. Securities and Exchange Commission (SEC) and Coinbase, a federal judge has ruled that the SEC’s case against the cryptocurrency exchange can move forward.

Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York denied most of Coinbase’s motion to dismiss the SEC’s lawsuit. The judge stated that the regulatory agency had presented a “plausible” case against the exchange.

Key highlights:

• Judge Failla ruled that the SEC’s case against Coinbase can proceed, with the exception of the claim that Coinbase Wallet acted as an unregistered brokerage.
• The SEC sued Coinbase last year, alleging that the exchange was violating federal securities laws by offering trading and staking services.
• The judge dismissed Coinbase’s claims that the SEC is violating the Major Questions Doctrine or the Administrative Procedures Act.
• Judge Failla pointed out that customers who buy tokens on Coinbase’s platform are investing in the token’s digital ecosystem, which is dependent on the token’s value.
• A jury will likely hear the case in 2025 as it moves forward to trial.

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In her ruling, Judge Failla set April 19 as the deadline for the parties to decide on a case scheduling plan. The SEC had sued Coinbase last year, along with fellow exchange Binance, alleging that the company was operating as an unregistered broker, exchange, and clearinghouse. The regulatory agency also contested Coinbase’s staking and wallet services, claiming their public availability violated federal securities laws.

Judge Failla finds compelling arguments against Coinbase

While Judge Failla dismissed the SEC’s claim that Coinbase Wallet acted as an unregistered brokerage, she found that the SEC had a compelling argument that some of the tokens listed on the wallet might meet the standards for “investment contracts.”

The judge also rejected Coinbase’s claims that the SEC was violating the Major Questions Doctrine. The Major Questions Doctrine is a U.S. Supreme Court ruling that prohibits federal agencies from exceeding their congressional mandates. Judge Failla pointed out that Coinbase had ample notice that the SEC was pressing cases against crypto companies, citing the DAO Report and previous cases.

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The judge also noted that token developers often advertise the fact that capital raised through retail sales of tokens will continue to be re-invested, further strengthening the SEC’s case against Coinbase. The case is expected to be presented to a jury, though the trial process is unlikely to begin until 2025.