Key Takeaways
- A federal judge has ruled that the SEC's lawsuit against Coinbase, alleging it operates without proper registration, can proceed.
- The ruling partially favored Coinbase by dismissing claims it acted as an unregistered brokerage but allowed other significant allegations to advance.
- The outcome of this case could have far-reaching implications for the regulation of crypto exchanges.
A recent ruling by a federal judge has put Coinbase under investigation for allegations of operating without proper registration.
The decision, delivered by Judge Katherine Polk Failla of the US District Court for the Southern District of New York, pushes forward the lawsuit initiated by the US Securities and Exchange Commission (SEC) against the crypto exchange.
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The SEC claims that Coinbase has been offering trading and staking services to the public without the necessary regulatory approvals, effectively acting as an unregistered broker, exchange, and clearinghouse.
Judge Failla's ruling rejected most of Coinbase's request to dismiss the lawsuit, recognizing the SEC's accusations as credible. Although the court sided with Coinbase on claims of it acting as a brokerage, it permitted the other aspects of the lawsuit to advance:
The Court concludes that because the well-pleaded allegations of the Complaint plausibly support the SEC’s claim that Coinbase operated as an unregistered intermediary of securities, Defendants’ motion must be denied.
She highlighted that the digital tokens offered on Coinbase's platform could indeed be classified as "investment contracts," thereby meeting the criteria for regulation under federal securities laws.
Coinbase, for its part, has been given a deadline of April 19 to agree with the SEC on a case scheduling plan.
Should the court eventually side with the SEC's stance that crypto exchanges require similar regulations as traditional securities exchanges, it would potentially narrow the variety of tokens accessible to investors and impose stricter disclosure requirements on trading platforms.
This legal battle is part of the SEC's broader trend of filing lawsuits against crypto firms. The commission has also sued Ripple for alleged violations of securities laws and is pursuing a fine of nearly $2 billion.
