Coinbase, SEC set for courtroom face-off tomorrow

Months after trying to toss the US Securities and Exchange Commission’s case against it, Coinbase will soon face the agency in federal court.

Oral arguments on Coinbase’s motion to dismiss the SEC’s lawsuit, filed last June, will kick off in Manhattan Wednesday morning. Legal experts and crypto fans say the exchange has a solid chance at getting its way.

The SEC sued Coinbase in June 2023, alleging the publicly-traded crypto exchange was operating as an unregistered broker, exchange and clearing agency. The agency claimed 13 cryptocurrencies available on Coinbase are securities: SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH and NEXO.

Coinbase in August argued that the SEC was overstepping, as none of these tokens meet the classification of a security. Lawyers for the exchange further argued that the regulator had allowed the exchange to go public via direct listing in 2021 — an effective seal of approval on Coinbase’s business operations.

“The SEC has violated due process, abused its discretion, and abandoned its own earlier interpretations of the securities laws,” Coinbase’s team wrote in the August motion. “But there is a more fundamental problem with its case — one the Chair recognized two years ago and that entitles Coinbase to judgment on the pleadings now: The subject matter falls outside the agency’s delegated authority.”

Wednesday’s hearing presents an opportunity for both sides to plead their case to presiding Judge Katherine Polk Failla, who could opt to dismiss the case in full or in part, send it to a jury trial, or issue a summary judgment.

A full dismissal is a long shot, a person familiar with the matter told Blockworks, but the fact that Failla has opted to proceed with oral arguments — a fairly rare occurrence in early motions to dismiss — is promising.

It’s not Failla’s first case in the crypto realm. In August she dismissed a class action complaint against Uniswap, noting in her opinion that ether is a “crypto commodity.” Failla also said in her opinion that “Congress and the courts” have yet to make a definitive ruling as to whether to classify cryptocurrencies as securities or commodities.

It’s a classification some argue could help Coinbase as it seeks to dismantle the SEC’s stance that it is facilitating securities trading.

“Based on this judge’s prior dismissal of the Uniswap case, her clear understanding of the technology, her finding that Eth is a commodity, and acknowledgement that Congress should be involved in this process…I’ll be very interested to see how this plays out,” Jeremy Hogan, managing partner at Hogan and Hogan, wrote on X.

Failla may rule tomorrow on the motion to dismiss, or, more likely, take several weeks or months on her opinion. Should the case not be dismissed in full, the parties will move on to the discovery stage, where each side will request documents and information.

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