A Manhattan federal judge today ruled that the Securities and Exchange Commission (SEC) lawsuit against Coinbase can move forward, dismissing only one claim in a partial victory for the cryptocurrency exchange.
The decision comes in response to Coinbase’s motion to dismiss the SEC’s June 2023 lawsuit, which alleged the company facilitated unregistered securities trading and operated as an unregistered exchange, broker, and clearing agency. The Crypto exchange is facing regulatory heat for facilitating the trading of at least 13 crypto tokens that should have been registered as securities.
U.S. District Judge Katherine Polk Failla allowed the majority of the lawsuit to proceed, but dismissed the SEC’s claim that Coinbase operated as an unregistered broker through its wallet application.
Failla wrote in her ruling, “The Court finds that the SEC adequately alleges that Coinbase, through its Staking Program, engaged in the unregistered offer and sale of securities.”
The case against the world’s largest publicly traded cryptocurrency exchange represents a watershed moment in the regulator’s efforts to apply US securities law to digital asset companies.
To do so, the SEC has largely relied on a United States Supreme Court decision that established a test for determining whether an investment is a security. A key question is whether the returns “come solely from the efforts of others.”
Coinbase has argued that, unlike stocks and bonds, crypto assets do not meet that definition, a view shared by the vast majority of the crypto industry.
Coinbase shares fell around 2.5% lower on news of the ruling in Manhattan federal court rejecting its bid to dismiss the SEC’s complaint.
The SEC and Coinbase did not immediately respond to a request for comment. It is a partial victory for Coinbase in what could be a long and costly legal battle.
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