HomeCryptocurrencyUS Court Rules Coinbase Must Face SEC's Lawsuit

US Court Rules Coinbase Must Face SEC’s Lawsuit

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Despite rejecting most of Coinbase’s attempts to dismiss the entire case, the judge found the SEC’s arguments insufficient in proving that the company functions as a ‘broker’ by providing Wallet to customers. 

A court in the United States has ruled that Coinbase must face the legal actions brought against it by the country’s Securities and Exchange Commission (SEC). In a court hearing on Wednesday, US District’s Judge Katherine Failla denied the company’s motion to dismiss the SEC’s charges, which claimed the exchange violated federal securities rules.

Court Denies Coinbase Motion

In June 2023, the SEC sued Coinbase for operating in the US as an exchange, broker, and clearing agency without registering with the regulator. The securities watchdog alleged that Coinbase has been engaging in an unregistered securities offering since 2019 through its staking-as-a-service program, which allows customers to earn profits on their crypto holdings.

The SEC said that through the offering of these services, the exchange provided a “marketplace that brings together the orders for securities of multiple buyers and sellers using established”.  In the complaint, the Commission disclosed that the exchange’s failure to comply with the securities law had deprived investors of significant protections as demanded by law.

In contrast, Coinbase filed a countermotion arguing that transactions conducted on its platform do not meet the criteria for financial securities and, therefore, are not under the jurisdiction of the SEC.

However, the court denied the motion, ruling that some of the transactions facilitated on the exchange could qualify as securities, citing past precedents. “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,” revealed the court.

 Insufficient Evidence

Judge Failla also ruled in favor of the SEC’s claim that Coinbase operates an unregistered exchange and clearing agency, noting that the agency has presented a “plausible” case against the company.

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

Despite rejecting most of Coinbase’s attempts to dismiss the entire case, the judge found the SEC’s arguments insufficient in proving that the company functions as a ‘broker’ by providing Wallet to customers.

As a result, the court dismissed the SEC’s claim related to this part of Coinbase’s service. The court has also requested the exchange and the SEC to submit a “proposed case management plan” by April 19.

Meanwhile, following the news of the court ruling, Coinbase’s chief legal officer, Paul Singh Grewal, said on X that “early motions like ours against a government agency are almost always denied. But clarity is the ultimate goal, and today’s decision continues us on that path.”

The company plans to continue fighting to prove to the SEC that its product offerings do not constitute securities.

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