Elliott Z. Stein, a senior litigation strategist at Bloomberg Intelligence, shared his opinion on why leading American crypto exchange Coinbase has a good chance of securing victory in its motion to dismiss all claims made against it by the U.S. Securities and Exchange Commission (SEC).
70% Chance Coinbase Wins
Coinbase and the Securities and Exchange Commission faced off in court on Wednesday to present oral arguments on whether Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York should toss out or allow the lawsuit to continue.
According to Eliott Z. Stein, Coinbase has a 70% chance of securing legal victory against the SEC. The exchange first filed the motion to dismiss in June 2023, claiming that none of the tokens named in the SEC’s suit against it earlier that month satisfied the definition of an investment contract. This means the tokens cannot be classified as securities, nor can Coinbase be labelled an unregistered securities exchange.
Stein recalled how Judge Failla pressed the SEC to explain how it has authority over Coinbase in the case by defining what it considers an investment contract.
Coinbase’s counsel argued that purchasing a token does not involve acquiring a stake in a “business”. Going by this standard, cryptocurrency sales on Coinbase’s digital asset trading platform, its staking business, and the Coinbase Wallet fall outside the SEC’s jurisdiction.
After witnessing Coinbase’s faceoff with the SEC, Stein is even more upbeat about Coinbase’s prospects. He previously expected partial dismissal of the SEC’s allegations, but now, he believes Coinbase should seek complete dismissal.
Coinbase v SEC Holds Important Implications For Crypto
Bloomberg’s Stein expects Judge Failla’s ruling to come by the end of the second quarter of 2024.
While the SEC has suffered several losses in its crypto showdowns, such as in its suit against Ripple Labs and Grayscale Investments’ success in challenging the regulator’s spot Bitcoin exchange-traded fund (ETF) bid rejection, the Commission recently scored a win in its claim that Terraform was offering unregistered securities via its Terra/Luna stablecoin offerings and the Mirror Protocol.
In the Grayscale case in particular, a federal judge declared the SEC to be taking “arbitrary and capricious” actions against a crypto company, and Coinbase is likely prepared to make a similar claim here.
Coinbase vs SEC is believed to be the first major case that might bring into focus this debate regarding whether the 13 tokens in question should be considered investment contracts or securities transactions under the infamous Howey test. Most importantly, a win for Coinbase would significantly affect SEC chair Gary Gensler’s efforts to regulate the crypto sector through enforcement actions.
If District Judge Failla is not convinced that Coinbase has justified an early conclusion of the case in the exchange’s favor, the case will proceed to trial.
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