Coinbase says full dismissal of SEC lawsuit is imminent

Coinbase announced this morning that the SEC has agreed to drop its lawsuit against the crypto exchange. 

In a blog post and regulatory filing, Coinbase said it had “reached an agreement in principle” with SEC staff to dismiss the lawsuit with prejudice, meaning the complaint cannot be refiled. The agreement is subject to SEC commissioner approval, the filing added. 

As a reminder, the SEC currently has only two sitting commissioners: Republicans Mark Uyeda, who is acting chair, and Hester Peirce. 

Uyeda and Peirce in 2023 issued a joint opinion dissenting the commission’s decision to deny Coinbase’s petition for rulemaking. This matter evolved into its own lawsuit separate from the one Coinbase now says is getting tossed. Like we’ve said before, we do not envy Coinbase’s legal bills, but I digress. 

Given their well-documented distaste for the agency’s enforcement action track record under Chair Genser, I expect the two will sign off on the agreement SEC staff has apparently reached with Coinbase. 

As of this afternoon, the SEC had not filed a motion to dismiss the lawsuit in either the SDNY (where the complaint was originally filed) or in the Second District, which has been tasked with ruling on Coinbase’s interlocutory appeal. 

We wrote earlier this week that the SEC had filed for an extension in the Second District. In this filing the regulator mentioned its new “crypto task force,” which may help “facilitate the potential resolution” of the litigation. 

The lawsuit was originally filed in 2023 and alleged Coinbase violated securities laws by selling unregistered securities. Thirteen unregistered securities, to be exact. Among the tokens named in the suit were solana and filecoin. 

Coinbase last year tried to get the lawsuit tossed altogether. The attempt largely failed but the judge did agree to dismiss allegations around Coinbase’s wallet service, which the SEC had claimed acted as an unregistered broker. 

And then came Coinbase’s motion for an interlocutory appeal. The exchange asked the judge to allow a higher court to weigh in on one crucial question in the case, and the judge agreed. 

The question now posed to the Second Circuit (well, at least until the whole case gets dismissed) is whether or not intermediated crypto transactions involve investment contracts. If the answer to this question is yes, then that means crypto exchanges are facilitating securities transactions, which would be a problem. 

Coinbase elevating part of this case to the Second District was seen as a major win. The problem with district court rulings, even those from the prestigious Southern District of New York, is that they don’t set much precedent. Judges within the same district could come to different conclusions, like we saw in the Terraform and Ripple rulings. 

An appellate level decision holds more weight. This type of ruling would come in handy should the SEC, say, sue another crypto exchange down the line. 

All of this is probably moot now, though. There won’t be an appellate ruling, which at one point would have been seen as a disappointment for an industry seeking greater clarity. But if the “new” SEC doesn’t pursue these types of enforcement actions against crypto, is the clarity really needed? 

For the time being, I guess not. But nothing — especially not agency leadership and presidential terms — lasts forever.

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