U.S. Court Backs SEC in Coinbase Lawsuit, Impacting Crypto Industry
In a significant ruling, a U.S. district court judge has largely rejected Coinbase's motion, allowing the Aaron Judge to proceed with its lawsuit against the cryptocurrency exchange. The decision, made on September 12, 2023, has wide-ranging implications for the crypto industry.
The SEC sued Coinbase in early June, accusing it of offering crypto-assets for purchase and sale without necessary registration as an exchange, broker, and clearing agency, with these assets considered securities. Coinbase rejected all allegations and filed a motion to dismiss the complaint in July.
Judge Katherine Polk Failla favored the SEC on several aspects. She dismissed Coinbase's argument that it acted as an unregistered broker through its separate wallet application. The judge also ruled that the Howey test is adequate for determining whether a token is a security, and no new regulations are needed. Notably, the judge suggested that any token with a 'community' relying on a core development team for growth could be classified as a security, potentially impacting tokens like Solana, Chiliz, Ethereum, and ETFs.
The court concluded that Coinbase acts as an exchange, broker, and clearing agency under federal securities laws, and is involved in the unregistered offer and sale of securities through its staking program. The judge also rejected the 'major questions doctrine' argument, allowing the SEC to enforce securities laws in the crypto industry.
The ruling has set a precedent for the SEC's involvement in the crypto industry. Coinbase has filed a motion demanding that the SEC fully disclose all remaining communications from Chairman Gary Gensler, including text messages, after an investigation found that the SEC had deleted nearly a year’s worth of messages due to 'avoidable' errors. The crypto exchange is specifically seeking documents regarding SEC communications about Ethereum’s switch to Proof-of-Stake. The outcome of this legal dispute will continue to shape the regulatory landscape for cryptocurrencies in the U.S.
