Coinbase is caught in a lawsuit whirlpool: background of the case, details of the verdict and future direction

On March 27, Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York dismissed most of Coinbase’s motions, holding that Coinbase acted as an unregistered exchange, broker, and clearing agency. An institution under the federal securities laws and through its pledge program engages in the unregistered offering and sale of securities. However, the court dismissed the SEC’s accusation that Coinbase acted as an unregistered broker by providing its wallet application to customers.

Original text of the judgment:

https://plum-harrietta-82.tiiny.site/

References:

https://www. coindesk.com/policy/2024/03/27/coinbase-loses-most-of-motion-to-dismiss-sec-lawsuit/?utm_medium=referral&utm_source=rss&utm_campaign=headlines

Case Background

On June 6, 2023, the SEC launched a lawsuit against Coinbase, accusing it of violating federal securities laws by providing trading and staking services to the public. It also believes that Coinbase Wallet acted as an unregistered brokerage firm. Require Coinbase to return illegal profits and pay corresponding prejudgment interest, impose civil penalties on Coinbase, and grant any remedies that may be appropriate to protect the interests of investors.

In a response filed on June 29, 2023, Coinbase responded to the SEC’s lawsuit against it. Coinbase stated that the cryptocurrencies listed by the SEC are not investment contracts and therefore are not securities and do not fall within its regulatory scope. Coinbase also said that its due process rights were violated when the SEC filed the lawsuit and that the SEC's lawsuit may have violated the "material issues" doctrine.

On August 4, 2023, Coinbase filed documents in response to SEC accusations that the regulator went far beyond its jurisdiction. Coinbase countered in the filing that the SEC did not claim that the examples involved contracts that invested in the future value of the contract. Not only do the transactions on the Coinbase platform and Prime not involve the provision of contracts that reflect the business’s revenue, profits, or the future value of its assets, they are sales of goods in which the parties’ obligations are completely discharged once the cryptographic tokens are delivered in exchange for payment.

On October 25, 2023, Coinbase filed a case response brief and stated in the document that because the SEC’s complaint did not and could not argue that the simple asset transactions it determined involved ongoing contractual obligations related to the enterprise, it Coinbase reserves the right to make a judgment on the complaint. The SEC's view that any purchase by a buyer seeking to obtain increased value constitutes an investment contract, and therefore a security, is an attempt to fundamentally expand its own powers and, as the material issues doctrine makes clear, is material if an institution wants to Decisions on issues must be supported by clear authorization from Congress.

Details of the decision

Judge Katherine Polk Failla denied most of Coinbase’s motions, finding that the regulator had brought “reasonable” charges against the exchange. She set an April 19 deadline for both sides to agree on a plan to organize the case. While the judge said the SEC appeared to have reason to believe that certain tokens listed on Wallet might qualify as an "investment contract," Coinbase did not appear to be acting as a brokerage and dismissed that portion of the lawsuit. She ruled that other aspects of the lawsuit could proceed, rejecting claims that the SEC violated the material issues doctrine or the Administrative Procedure Act.

Coinbase Chief Legal Officer Paul Grewal said: Early-stage motions like ours against government agencies are almost always denied. We encourage the U.S. Congress to continue advancing comprehensive U.S. digital asset legislation as it continues this process and any necessary appeals. This is critical if innovation is to stay in the United States. We also appreciate the court’s understanding that technological innovations such as the Coinbase Wallet do not and cannot implicate U.S. securities laws.

Future Direction

The case is currently in the trial stage, and the final verdict is still uncertain, and there are different opinions on the direction of the case. Former U.S. federal prosecutor and Cahill Gordon & Reindel LLP partner Samson Enzer predicted on January 27 that the judge would not dismiss the SEC v. Coinbase case at this stage because the threshold for the SEC to bring charges sufficient to obtain evidence disclosure is very high. Low. Enzer said the question for the court now is whether there is enough evidence to make a viable claim and then proceed with discovery, assuming the SEC's position holds.

JW Verret, a former SEC advisory committee member, said after winning the XRP case in 2023 that the court’s decision in the XRP case will greatly improve Coinbase’s chances of winning in court proceedings against the SEC. Elliott Stein, a senior litigation analyst at Bloomberg, predicted in January that Coinbase would win in its lawsuit against the SEC. He believed that Coinbase’s definition of “investment contract” is more precise than that provided by the SEC, which may be a turning point in the case. He also mentioned that the ruling in the Ripple v. SEC case could have a positive impact on Coinbase’s lawsuit.

FOX記者エレノア・テレットは、事件が終結するまでは明確な「勝利」はないと信じている。しかし、今回の判決では双方の勝利となった。 SECは、Coinbaseの主張のほとんどに合理的な根拠があるとフェイラ判事に納得させることに成功した。しかし同様に、コインベースは発見プロセス中に彼女を説得したかもしれない。 Failla氏はまた、ウォレットに関するCoinbaseの主張にも同意した。関係者全員にとって良いニュースは、ファイラ判事が実際に暗号資産/Web3について多くの知識を持ち、訴訟の結果の重要性を認識しているということです。

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