On Wednesday, a federal judge overseeing the sweeping lawsuit filed by the US Securities and Exchange Commission (SEC) against Coinbase denied the latter’s motion to dismiss the case in its entirety.
According to the judge, the arguments that the regulator has presented against the crypto exchange are quite ‘plausible’, which means the case will proceed.
The ruling
It should be noted that the rulings on motions to dismiss are not considered resolutions of factual disputes, as evident in this particular case.
When such motions are evaluated, only a lack of plausible evidence for violation of law will prompt federal judges to dismiss a lawsuit, even if all facts that the plaintiff has alleged are true.
As far as this case is concerned, US District Judge Kathleen Failla said that most of the claims that the SEC has made against Coinbase are fit for trial.
She also indicated support for the broader, long-standing argument that the agency has made about crypto.
As per the regulator, many of the tokenized assets are categorized as securities, which means they fall under the purview of the SEC.
Judge Failla said that the ‘crypto’ nomenclature is certainly a recent introduction, but the transactions that have been challenged fall within the framework that have been used by courts for identifying securities for nearly eighty years.
The claims
Judge Failla allowed the case filed by the SEC against Coinbase to proceed on two major claims, the first of which is that the crypto exchange is operating as an unregistered securities exchange.
The second one is that the crypto staking program that Coinbase offers is additional offerings of unregistered securities.
But, the Judge dismissed a third claim, which alleged that the company conducts brokerage activity through its Coinbase Wallet.
However, this does not help Coinbase’s case against the SEC because the claim was dismissed because it did not fit the legal definition of a brokerage.
The reaction
Paul Grewal, the Chief Legal Officer at Coinbase, took to X and said that the ruling did not come as a surprise to them.
He said that they had been prepared for it because early motions against a government agency are usually denied.
He added that their ultimate goal was clarity and this decision would help them continue down that path.
The SEC’s lawsuit against the crypto exchange will now move onto the discovery process. Both parties have been instructed by the judge to submit proposed case management plans by 19th April.
In January, Coinbase had argued the merits of its motion to dismiss the lawsuit and the judge had appeared to be intrigued by the arguments that were presented by the crypto industry advocates.
However, her ruling not only points to trouble ahead for Coinbase but also for the broader, ongoing battle of the crypto industry against federal regulators.
In her judgment, Judge Failla rejected Coinbase’s claim that the regulatory body violated federal law because it had not disclosed its crypto policy.
The DeFi Education Fund had also filed a lawsuit against the SEC earlier this week on similar grounds.