SEC Suit Against Coinbase Can Go Forward, Judge Rules

(Bloomberg) -- The US Securities and Exchange Commission can proceed with its lawsuit against Coinbase that the company failed to register as a securities business, a federal judge in Manhattan ruled on Wednesday.

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The decision is a blow to Coinbase and other cryptocurrency players who have argued the SEC has no power to regulate them because they don’t traffic in “securities” that have to be registered. Shares of Coinbase were down 1.3% after falling close to 4% in earlier trading.

Coinbase engages in the “unregistered sale and offer of securities” under US law and operates as an exchange, a broker and a clearing agency for purposes of the federal securities laws, US District Judge Katherine Polk Failla said in the ruling which comes at an early stage of the case. Coinbase still has opportunity to defeat the case after evidence-gathering or on appeal.

“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 ruling said. The judge, however, dismissed claims that Coinbase’s Wallet application acts as a broker under the US law.

The overall ruling is a win for the SEC, which has asserted jurisdiction over crypto and has won rulings from several judges in New York.

The SEC sued Coinbase in June, claiming that, beginning in 2019, Coinbase made billions of dollars illegally promoting the sale of securities. The SEC claims Coinbase has failed to register, as required, as an exchange, a broker and a clearing agency.

The case is Securities and Exchange Commission v. Coinbase Inc., 23-cv-04738, US District Court, Southern District of New York (Manhattan).

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--With assistance from Chris Dolmetsch.

(Adds details from the ruling)

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