Court Denies Coinbase Motion to Dismiss SEC Lawsuit, Allowing Case to Proceed

A United States court has denied crypto exchange Coinbase motion to dismiss the Securities and Exchange Commission’s (SEC) lawsuit against the platform.

This ruling by U.S. District Judge Katherine Failla clears the way for the SEC to proceed with its case alleging Coinbase violated federal securities laws.

SEC Alleges Coinbase Facilitated Unregistered Securities

The crux of the SEC’s complaint, filed in June 2023, accused Coinbase of operating as an unregistered exchange, broker, and clearing agency.

Specifically, the SEC alleged that at least some of the crypto transactions facilitated on Coinbase’s platform constituted investment contracts, which are classified as securities under U.S. law.

In her ruling denying Coinbase’s motion to dismiss, Judge Failla stated the SEC

“has sufficiently pleaded that Coinbase operates as an exchange, as a broker, and as a clearing agency under the federal securities laws.”

Coinbase had argued that the cryptocurrencies traded on its platform do not qualify as securities and thus fall outside the SEC’s jurisdiction.

However, the court disagreed, noting “the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eight years.”

A key factor cited was Coinbase’s lack of proper registration with the SEC as required for platforms facilitating securities transactions.

The court order stated,

“because the well-pleaded allegations of the Complaint plausibly support the SEC’s claim that Coinbase operated as an unregistered intermediary of securities, Defendants’ motion must be denied.”

Read Also: Coinbase Challenges SEC’s Broad Definition of Securities in New Court Filing

Legal Officer and CEO Responds to Ruling

Responding to the ruling, Coinbase Chief Legal Officer Paul Grewal stated: “Today, the Court decided that our SEC case will move forward on most of the claims, but dismissed the claims against Coinbase Wallet. We were prepared for this, and we look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation.”

Today, the Court decided that our SEC case will move forward on most of the claims, but dismissed the claims against Coinbase Wallet. We were prepared for this, and we look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation. 1/6

— paulgrewal.eth (@iampaulgrewal) March 27, 2024

Grewal added that while they expected this early motion to be denied, “clarity is the ultimate goal and today’s decision continues us on that path.” He also encouraged Congress to “advance comprehensive digital assets legislation” amid the ongoing legal process and any necessary appeals.

Coinbase co-founder and CEO Brian Armstrong highlighted one positive aspect, stating:

“Great progress on the SEC case – and huge win for self-custodial wallets. This ensures the onchain ecosystem will continue to innovate and create economic freedom around the world. We’ll continue fighting for your right to use crypto, and to get clarity around the rules, until the job is done.”

CEO Brian Armstrong

With Coinbase’s motion dismissed, the SEC can now proceed with its enforcement action against the cryptocurrency exchange. The two parties have been ordered to submit a proposed case management plan by April 19.

This ruling represents a major victory for the SEC in its wider effort to regulate the crypto industry and assert its authority over certain crypto assets and trading platforms it deems involve securities transactions.

Read Also: SEC Counters Coinbase’s Dismissal Motion, Asserts Cryptos as Investment Contracts