SEC may proceed with Coinbase case: court ruling

A US court has denied Coinbase's request to dismiss the US Securities and Exchange Commission's (SEC) lawsuit against the exchange.

The ruling by U.S. District Judge Catherine Failla allows the SEC to pursue the lawsuit against Coinbase, which said the exchange operates as an unregistered exchange, brokerage and clearing agency, according to a March 27 court filing.

“The court has sufficiently pleaded that the SEC operates Coinbase as an exchange, broker, and clearing agency under the federal securities laws and engages in the unregistered offering and sale of securities through the staking program.”

The SEC sued Coinbase in June 2023, listing 13 tokens the crypto exchange alleged violated federal securities laws. The company was seeking an order to dismiss the case, challenging the SEC's jurisdiction over the crypto exchange.

Related: Coinbase Asks Court to Overturn SEC's ‘Empty Chair' Securities Ruling

Coinbase has argued that transactions facilitated on its platform do not qualify as financial securities and thus fall outside the purview of the SEC. However, the regulator argues that at least some of those transactions constitute investment contracts:

“At least some of the transactions on Coinbase's platform and related services constitute “investment contracts,” which the federal securities laws have long recognized as securities. The parties acknowledge that the viability of the enforcement action hinges on this distinction.”

The court denied Coinbase's motion to dismiss the case, ruling that similar transactions were previously considered securities transactions:

“As discussed herein, the “crypto” designation may be a recent invention, but the challenging transactions fall comfortably within the framework that courts have used to distinguish securities for eight years.”

The court also cited Coinbase's failure to register with the securities regulator.

“The court concludes that the allegations in the complaint support the SEC's claim that Coinbase was acting as an unregistered securities intermediary and that the defendants' motion must be dismissed.”

According to court documents, the two sides were ordered to submit a “proposed case management plan” by April 19.

Related: SEC Seeks $2B in Fines and Penalties – Ripple Chief Legal Officer