The federal judge has ruled that the U.S. Securities and Exchange Commission (SEC) has presented a compelling case against Coinbase, warranting the continuation of its lawsuit.
Judge Katherine Polk Failla, presiding over the U.S. District Court for the Southern District of New York, delivered the ruling, denying most of Coinbase's motion to dismiss the SEC's allegations.
SEC Allegations Against Coinbase
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The Securities and Exchange Commission has now the upper hand over Coinbase in its ongoing lawsuit. The shares of the crypto exchange are down 2.5% at the time of the ruling.
The SEC initiated legal action against Coinbase, accusing the exchange of operating as an unregistered broker, exchange, and clearinghouse. The regulatory body contends that Coinbase violated federal securities laws by offering trading and staking services to the public without appropriate registration. Additionally, the SEC alleges that Coinbase Wallet acted as an unregistered brokerage, further exacerbating the company's legal predicament.
Related Article: CryptoWatch: Coinbase Bounces Back, Bitcoin's Future, Crypto's Help to USD's Strength
SEC vs Coinbase Lawsuit Will Continue
While Judge Failla acknowledged the SEC's plausible argument regarding certain tokens listed on Coinbase Wallet potentially meeting the criteria for "investment contracts," she dismissed claims that Coinbase was acting as a brokerage. However, she upheld other aspects of the SEC's lawsuit, indicating that the case will proceed.
Impact of Lawsuit in the Crypto Industry
The outcome of this lawsuit carries significant implications for the broader crypto industry, as it could shape regulatory standards and operational practices in the United States, according to CoinDesk.
Should the court rule in favor of the SEC's position, exchanges may face heightened scrutiny and regulatory obligations akin to national securities exchanges. This could result in stricter disclosure requirements and limitations on the availability of tokens for retail investors.
"When a customer purchases a token on Coinbase's platform, she is not just purchasing a token, which in and of itself is valueless; rather, she is buying into the token's digital ecosystem, the growth of which is necessarily tied to value of the token. This is evidenced by, among others, the facts that (i) initial coin offerings are engineered to have resale value in the secondary markets and (ii) crypto-asset issuers continue to publicize their plans to expand and support the token's blockchain long after its initial offering," Failla said.
Crypto Firms Might Face Regulatory Uncertainty
Coinbase's legal battle with the SEC reflects a much bigger challenge faced by crypto companies in navigating regulatory ambiguity. The outcome of this case, along with others like the ongoing SEC lawsuit against Ripple, will undoubtedly influence the regulatory landscape for years to come.
While initial motions may have been denied, the substantive arguments and implications of the case will be thoroughly deliberated as proceedings progress.
Moving forward, stakeholders will closely monitor developments in this case, anticipating its potential impact on the industry's future trajectory.
Meanwhile, the decision did not spare Coinbase as its shares dropped by around 2.5% following the news about the lawsuit ruling, per CNBC.
Back in April 2023, the tables turned for the SEC as Coinbase sued the government agency for its lack of response in crypto regulation.
The crptocurrency exchange accused that the SEC failed to respond to the petition. This left the company hanging and waiting for any decisions.
Read Also: Coinbase Reports 11% Stock Increase, Bullish Returns in the Crypto Market in Q4 2023
