SEC scores big win in lawsuit against crypto exchange Coinbase

On Wednesday, a court determined that the Securities and Exchange Commission’s complaint against Coinbase, alleging unregistered securities transactions, can be heard by a jury at trial.

Coinbase’s shares plummeted almost 2.5% after a Manhattan federal court rejected its plea to dismiss the SEC’s complaint.

The agency first sued Coinbase in June, alleging that the business was operating as an unregistered broker and exchange. The agency also ordered that the corporation be “permanently restrained and enjoined” from continuing to do so.

In her decision Wednesday, U.S. District Judge Katherine Polk Failla wrote, “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.”

“The Court finds that the SEC adequately alleges that Coinbase, through its Staking Program, engaged in the unregistered offer and sale of securities,” the judge ruled.

In that order, the judge also agreed to reject the SEC’s contention in the case that Coinbase acted as an unregistered broker by making its Wallet program available to users.

In response to CNBC’s request for comment, the business provided a link to a series of posts on social networking site X by Coinbase’s chief legal officer, Paul Grewal.

“We were prepared for this, and we look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation,” Grewal said in a statement.

Later Wednesday, the SEC added a notice of Failla’s ruling in the Coinbase case to the docket of a lawsuit it is pursuing in federal court in the District of Columbia against Binance, another large cryptocurrency exchange. In that litigation, the SEC accuses Binance of making several unregistered offers and sales of cryptocurrency securities.

Wednesday’s decision comes as Coinbase plays a larger role in Wall Street’s adoption of cryptocurrency.

In January, the SEC approved a slew of US spot bitcoin exchange-traded funds. Many of these ETFs have chosen Coinbase as their custody partner.

These US spot funds have received record flows since their inception in January. They have collectively earned approximately $52 billion.

In June, SEC Chair Gary Gensler told CNBC that trading platforms like Coinbase “call themselves exchanges” but are “commingling a number of functions.”

“We don’t see the New York Stock Exchange operating a hedge fund,” Gensler explained at the time.