Most of Coinbase’s motions were dismissed. The causes and consequences of the major negative judgmen

Editor: Cat Brother Wu talks about blockchain

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 under the federal securities laws and through its staking program Engage in unregistered offers and sales of securities. The court, however, rejected the SEC’s accusation that Coinbase acted as an unregistered broker by making its wallet app available to customers.

Case background

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

On June 29, 2023, Coinbase filed a reply in response 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 jurisdiction. Coinbase also said its due process rights were violated when the SEC filed its lawsuit and that the SEC's lawsuit may have violated the "material issues" doctrine.

On August 4, 2023, Coinbase filed documents to formally dismiss the SEC lawsuit, which alleged that the regulator went far beyond its jurisdiction. Coinbase countered in the filing that the SEC did not claim the examples involved investment contracts. Transactions on the Coinbase platform and Prime are not and do not involve contractual commitments to provide a reflection of the future value of a business's revenue, profits, or assets. They are sales of goods and the obligations of both parties are completely released once the cryptographic tokens are delivered in exchange for payment.

On October 25, 2023, Coinbase submitted 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, Coinbase had the right to make a decision on the complaint. make a judgment. 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.

Judgment details

Judge Katherine Polk Failla dismissed most of Coinbase’s motions, finding the regulator had made “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 firm 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. 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 member of the SEC advisory committee, said after winning the XRP case in 2023 that the court's ruling on the XRP case will greatly increase 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 its lawsuit against the SEC. He believes 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 may have a positive impact on Coinbase's lawsuit.

Fox reporter Eleanor Terrett believes there won't be a clear "victory" here until the case is concluded. But in this ruling, there was a victory for both sides. The SEC successfully convinced Judge Failla that it had a reasonable basis for most of Coinbase’s claims. But equally, Coinbase may have convinced her during the discovery process. Failla also agreed with Coinbase’s claims regarding the wallet. The good news for all parties involved is that Judge Failla actually knows a lot about cryptoassets/Web3 and realizes the importance of the outcome of her case.