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Coinbase Lawsuit Advances as Judge Rejects Dismissal Request

Key Insights:

  • Coinbase’s dismissal bid failed; court rules SEC’s lawsuit on unregistered securities can proceed.
  • SEC alleges Coinbase’s staking program resembles an unregistered security, driving the legal battle forward.
  • Despite setbacks, Coinbase wins partial victory as the court dismisses unregistered broker claims related to the wallet app.

The Securities and Exchange Commission (SEC) sued Coinbase Global Inc. for breaking securities laws, and Coinbase Global Inc. lost its move to have the lawsuit dismissed.

A federal judge ruled that the U.S. Securities and Exchange Commission should proceed with its lawsuit against Coinbase because it presented a strong enough case to support its claim that the cryptocurrency company is acting as an unregistered broker, exchange, and clearinghouse.

The majority of Coinbase’s motion to have the SEC lawsuit dismissed was denied by U.S. District Court for the Southern District of New York Judge Katherine Polk Failla on Wednesday, who determined that the SEC had a “plausible” case against the exchange. She gave the parties until April 19 to agree on a case scheduling schedule.

Coinbase loses most of its motion

The lawsuit will proceed as a result of U.S. District Judge Katherine Polk Failla’s ruling, which states that the SEC has “sufficiently pleaded” that Coinbase engages in the unregistered offer and sale of securities through its staking program and functions under federal securities laws as an exchange, broker, and clearing agency. 

“We’re pleased that yet another court has confirmed that, while the term ‘crypto’ may be relatively new, the framework that courts have used to identify securities for nearly 80 years still applies,” an SEC spokesperson said in an email. 

“It’s the economic realities of a transaction, not the labels, that determine whether a particular offering constitutes a security.”

The SEC appeared to be arguing that some of the tokens listed on Wallet might qualify as “investment contracts,” according to the judge. Still, Coinbase didn’t appear to be operating as a brokerage, so that portion of the lawsuit was dismissed.

SEC vs Coinbase

In June, the regulatory body filed a lawsuit against Coinbase, claiming that the business had broken securities laws by functioning as an unregistered clearinghouse, broker-dealer, and exchange. In August, Coinbase submitted a move to dismiss. Discovery is the next step in the case before a trial.

The SEC’s complaint claims that Coinbase operated as an unregistered exchange, broker-dealer, and clearing agency in violation of US securities laws.

Additionally, according to the SEC complaint, Coinbase’s staking program is similar to an unregistered security and investment contract because it enables investors to profit financially from Coinbase’s managerial efforts.

The complaint claimed that despite being “aware of the risk that it could be making available for trading on the Coinbase Platform crypto assets that were being offered and sold as securities,” the exchange attempted to list more cryptocurrency assets to increase its profits, even recommending that some issuers remove “problematic language” from the description of the cryptocurrency assets.

It wasn’t all bad news, though, for Coinbase. The cryptocurrency exchange’s move to have the SEC’s allegations that it operates as an unregistered broker by allowing users to access its wallet application granted by the court.

Nevertheless, the crypto industry has seen recent technological advancements, especially with the innovation of the AI Crypto Trade Bot. This AI cryptocurrency trading bot operates on the cloud and employs an algorithmic, programmed trading strategy. Thanks to this, customers can now use outside signals to make informed trades.