The legal showdown between the public-listed U.S. crypto exchange Coinbase, one of the global key players in the crypto industry, and the U.S. Securities and Exchange Commission (SEC) is expected to reach a significant turning point within the next three months. The SEC’s lawsuit against Coinbase, which was filed in June 2023, has entered a critical phase, with Coinbase recently appealing to the court for dismissal of the case.
According to a report by SeekingAlpha on January 21, citing analysis by Citi analyst Peter Christiansen, a decision on Coinbase‘s dismissal request is anticipated in the upcoming three months. Christiansen notes the complexity and significance of the case, suggesting that a resolution through initial motions is unlikely, potentially leading to a protracted summary judgment phase extending beyond a year. Citi maintains a neutral/high-risk stance on Coinbase due to the regulatory uncertainties surrounding the case and the potential impact of any judicial ruling on the company’s future.
In June, the SEC initiated legal action against Coinbase, alleging the company operates its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency. The SEC also charged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program.
During a recent court session presided over by Judge Katherine Polk Failla, Coinbase sought case dismissal. However, the judge adjourned without issuing a verdict.
Christiansen’s analysis outlines several potential scenarios. Should Judge Polk Failla reject the motion for dismissal, the case would likely proceed to a discovery phase, lasting at least a year before any summary judgment. Alternatively, the judge might grant the dismissal with prejudice, although this decision could face an SEC appeal. Another possibility is a dismissal without prejudice, allowing the SEC to revise its complaint. There’s also the chance of a partial acceptance of Coinbase‘s motion, leading to the dismissal of only a segment of the SEC’s lawsuit.
Coinbase has argued in court that the tokens traded on its platform do not qualify as securities under SEC regulations. The company’s attorney, William Savitt, emphasized that token purchasers do not receive rights akin to those associated with traditional stocks or bonds.
Read our report about Coinbase and the Security Token Question.
The debate over whether crypto tokens should be classified as securities remains a contentious legal issue. A similar case involving Ripple and its XRP token resulted in a federal judge ruling that the token did not fall under SEC jurisdiction. Coinbase is urging the judge in its case to consider the Ripple decision and dismiss the SEC’s lawsuit accordingly.
