SEC Wins Lawsuit Against Coinbase and Crypto

In a courtroom showdown, the Securities and Exchange Commission (SEC) emerged victorious in its legal battle against Coinbase, a big name in the world of cryptocurrency. A judge decided that the SEC’s claim of Coinbase selling securities without proper registration would proceed to a trial by jury. Following this decision in a Manhattan federal court, Coinbase’s shares took a 2.5% dip in trading.

The SEC’s lawsuit, filed back in June, accused Coinbase of operating as an unregistered broker and exchange. They wanted to stop these activities permanently. Judge Katherine Polk Failla backed the SEC’s argument, pointing out that despite the fancy “crypto” jargon, the transactions under scrutiny fit neatly into the legal definition of securities that’s been around for almost 80 years. She agreed that Coinbase’s Staking Program indeed involved unregistered sales of securities.

“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 eighty years.”

U.S. District Judge Katherine Polk Failla via CNBC

However, the ruling didn’t favor the SEC entirely. It dismissed their claim about Coinbase’s Wallet application, saying it didn’t amount to unregistered brokerage activity.

Coinbase responded by referring CNBC to statements made by its chief legal officer, Paul Grewal, expressing their readiness for the upcoming legal battle and their curiosity about the SEC’s views on crypto regulation.

This development comes at a time when Coinbase is becoming increasingly significant in Wall Street’s acceptance of cryptocurrency. Earlier in January, the SEC greenlit several U.S. spot bitcoin exchange-traded funds (ETFs), many of which partnered with Coinbase for custody services. These ETFs have collectively attracted around $52 billion in investments since their launch.

SEC Chair Gary Gensler had previously criticized platforms like Coinbase, suggesting they operate more like hedge funds than traditional stock exchanges.

The outcome of this legal tussle will undoubtedly have lasting effects on Coinbase and the wider cryptocurrency scene, shaping regulatory norms for years to come.