The Securities and Exchange Commission achieved a significant victory in its legal battle against Coinbase on Wednesday, as a judge ruled that the accusation of engaging in unregistered sales of securities could proceed to trial before a jury.
Coinbase experienced a drop of approximately 2.5% in its shares following the announcement of the ruling by a judge in Manhattan federal court, who denied the company’s attempt to dismiss the SEC’s complaint.
The SEC initially filed a lawsuit against Coinbase in June, alleging that the company was operating as an unregistered broker and exchange. Additionally, the agency sought to permanently prevent the company from continuing these activities.
In her ruling, U.S. District Judge Katherine Polk Failla stated, “The ‘crypto’ terminology may be relatively new, but the transactions in question
fit within the established framework courts have used to classify securities for nearly eighty years.”
Failla further wrote, “The Court finds that the SEC adequately alleges that Coinbase, through its Staking Program, engaged in the unregistered offer and sale of securities.”
However, the judge also agreed to dismiss the SEC’s claim in the lawsuit that Coinbase acted as an unregistered broker by providing its Wallet application to customers.
In response to CNBC’s request for comment, Coinbase directed to a series of posts on social media platform X by its chief legal officer, Paul Grewal, stating, “We were prepared for this, and we look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation.”
Subsequently, the SEC filed a notice of Failla’s decision in the Coinbase case on the docket of another lawsuit it has pending in federal court in the District of Columbia against Binance, another major cryptocurrency exchange.
In that suit, the SEC accuses Binance of conducting multiple unregistered offers and sales of crypto asset securities.
This development coincides with Coinbase’s increasing significance in Wall Street’s adoption of cryptocurrency. In January, the SEC approved several U.S. spot bitcoin exchange-traded funds, many of which have partnered with Coinbase as their custody partner.
Since their launch in January, these U.S. spot funds have experienced record inflows, collectively bringing in around $52 billion.
In June, SEC Chair Gary Gensler commented on CNBC that trading platforms like Coinbase “call themselves exchanges” but were “commingling a number of functions.” Gensler remarked, “We don’t see the New York Stock Exchange operating a hedge fund.”
