Coinbase Lawsuit Update

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

In a blog post and regulatory filing, Coinbase stated it had “reached an agreement in principle” with SEC staff to dismiss the lawsuit with prejudice, preventing any possibility of re-filing. This agreement awaits approval from the SEC commissioners.

Currently, the SEC has two sitting commissioners: Republicans Mark Uyeda, the acting chair, and Hester Peirce. In 2023, they jointly dissented against the SEC’s decision to deny Coinbase’s rulemaking petition. The situation escalated into a separate lawsuit from the one that is now being dismissed.

Given Uyeda and Peirce’s track record of skepticism toward the agency’s enforcement actions under Chair Gary Gensler, it is anticipated that both will approve the agreement made by SEC staff with Coinbase.

As of this afternoon, no motion to dismiss the lawsuit had been filed in the Southern District of New York (SDNY) or the Second District, which is reviewing Coinbase’s interlocutory appeal.

Earlier this week, the SEC requested an extension in the Second District, where it mentioned the newly established “crypto task force” which may aid in facilitating the potential resolution of the litigation.

Originally filed in 2023, the lawsuit accused Coinbase of violating securities laws by selling unregistered securities, specifically thirteen tokens, including Solana and Filecoin. Last year, Coinbase attempted to dismiss the lawsuit, which largely failed, but saw some success in having allegations about its wallet service dismissed.

Coinbase later sought an interlocutory appeal to pose a significant question regarding whether intermediated crypto transactions involve investment contracts. A positive ruling could classify crypto exchanges as facilitators of securities transactions, raising regulatory issues.

Taking this case to the Second District was perceived as a substantial win since district court rulings lack the precedent value of appellate court decisions, exemplified by the contrasting outcomes in the Terraform and Ripple cases.

However, with the impending dismissal of the case, the anticipated appellate ruling will not occur, which would have provided clarity for the struggling crypto industry. Yet, if the new SEC refrains from similar enforcement actions, the need for clarity may diminish for now.

For the moment, the uncertainty of agency leadership and presidential terms underscores that nothing remains constant forever.