Court Rules Against Coinbase in SEC Lawsuit, Case to Proceed

A judge ruled that the SEC can continue its case against Coinbase, but the exchange did celebrate a small win when the judge ruled in favor of Coinbase with regards to Coinbase Wallet.

Coinbase faces mixed fortunes in its legal tussle with the SEC. A U.S. court ruled against Coinbase, allowing the SEC to continue its lawsuit against the exchange over allegations of operating as an unregistered exchange and offering unregistered securities. However, Coinbase celebrated a partial win as the court favored the operation of its self-custody Coinbase Wallet. Meanwhile, Apple successfully dismissed an antitrust lawsuit that accused it of anti-competitive practices through its Apple Cash product.

A United States court has ruled against Coinbase in its legal battle with the Securities and Exchange Commission (SEC), allowing the regulator to proceed with its lawsuit against the crypto exchange. This decision stems from allegations by the SEC that Coinbase has been operating as an unregistered exchange, broker, and clearing agency, in addition to engaging in the unregistered offer and sale of securities through its Staking Program.

The lawsuit, which was initiated by the SEC in June of 2023, accuses Coinbase of violating federal securities laws by listing 13 tokens which the regulator labels as securities. Coinbase, in its defense, argued that the transactions on its platform do not constitute financial securities and should not fall under the SEC’s jurisdiction. The company wanted to dismiss the case, challenging the SEC's authority over crypto exchanges. However, the SEC held firm that certain transactions facilitated by Coinbase and related services qualify as 'investment contracts' and thus are recognized as securities under federal laws.

U.S. District Judge Katherine Failla's ruling implies that the transactions in question do actually align with the longstanding legal framework used to identify securities, dismissing the notion that the recent emergence of 'crypto' as a term alters their classification. Furthermore, the court also pointed out Coinbase's failure to register with the SEC as a major factor in denying the motion to dismiss.

As a result of this ruling, the case against Coinbase will move forward. Both parties have been ordered to submit a proposed case management plan by Apr. 19.

Luckily, things did not completely fall apart for Coinbase. The United States judge made a pivotal decision about Coinbase Wallet, sparking a lot of positive reactions from legal experts in the crypto space. Although the U.S. District Judge Katherine Failla denied Coinbase's attempt to dismiss a lawsuit by the SEC, the judge did rule in favor of Coinbase with regards to the operation of its Coinbase Wallet, a self-custody crypto wallet app that enables users to fully control their assets, determining that the SEC did not sufficiently prove that Coinbase conducted brokerage activity through the app.

This ruling is seen as a big victory for self-custody wallets and decentralized finance (DeFi) apps. Legal experts see it as a precedent that could benefit DeFi app developers facing similar allegations of acting as unregistered brokers. Zach Rosenberg, general counsel at Ethena Labs, celebrated the decision, highlighting its significance for browser-based wallet extensions and application front ends.

The Blockchain Association and legal experts in the crypto venture capital sphere have also shared their satisfaction with the ruling, and see it as a check against the SEC's overreach, particularly concerning the allegations against Coinbase Wallet. However, many people also pointed out that the SEC still achieved some wins in the case.

Jake Chervinsky, Variant legal chief, pointed out that while the decision benefits the DeFi sector by affirming that Coinbase Wallet is not a broker, the court agreed with the SEC on many other crucial issues. This includes the application of the Howey test to secondary market transactions and the definition of a "common enterprise" in the context of token projects.

Despite these mixed outcomes, the legal battle is far from over, as the case now moves into the discovery phase, where both Coinbase and the SEC will gather evidence for their respective arguments.

Judge Dismisses Antitrust Lawsuit Against Apple

Apple has also been in some hot legal water recently. However, United States District Judge, Vince Chhabria, dismissed an antitrust lawsuit against Apple which was filed by customers of Venmo and Cash App. The lawsuit accused Apple of anti-competitive practices through its Apple Cash product. Initiated on Nov. 17, 2023, in San Jose, the case aimed to challenge Apple's monopolistic control over its iOS App Store, particularly criticizing Apple Pay's dominance.

The lawsuit centered around allegations that Apple's policies effectively hinder or outright prevent competitors from introducing innovative features, like the incorporation of decentralized cryptocurrency payments into their services. This stifled competitive pricing and functional improvements for iOS users. They also argued that services like Venmo and CashApp, among others, were being unfairly restricted, which made them unable to offer features that could enhance user experience and promote fair competition.

However, on Mar. 26, Judge Chhabria ruled in favor of Apple, pointing out multiple critical flaws in the lawsuit. The judge found that the plaintiffs did not adequately define the antitrust violations they accused Apple of committing. Furthermore, the omission of other competitors like Zelle from the complaint raised questions about the basis of the allegations. Chhabria described the lawsuit as speculative and founded on a flawed premise, specifically critiquing the application of Guideline 3.1.5 from the App Store Terms of Service (T.O.S.) to the case.

This guideline, even if interpreted to restrict decentralized cryptocurrency transactions—which the judge found dubious—did not, in his view, constitute an unlawful agreement just because companies complied with App Store requirements for apps handling such transactions.

Despite dismissing the case, Judge Chhabria has given the plaintiffs a 21-day window to amend their complaint in a way that might address the identified issues and potentially revive the lawsuit. However, he is very skeptical about the possibility of rectifying the complaint's large number of deficiencies. Should the plaintiffs fail to file an amended complaint within the specified timeframe, the dismissal will be with prejudice, meaning they cannot file the case again on the same grounds.