The court found that the SEC was correct in alleging that Coinbase sold unregistered securities.

Members of the Crypto Open Patent Alliance (COPA) are celebrating their victory over Craig Wright as US authorities continue to poke holes in their argument that ‘cryptocurrencies’ deserve special treatment.

On March 27, Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York ruled on Coinbase’s (NASDAQ: COIN) bid to dismiss a lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against the digital asset exchange. A decision was made to reject it. (SEC) Last June. The SEC accused Coinbase of operating as an unregistered stock exchange, broker, and clearinghouse.

Last August, Coinbase asked Failla to dismiss the case based on the argument that none of the 12 tokens cited in the SEC’s complaint were unregistered securities. Coinbase went further in January’s oral argument, arguing that all four Coinbase services cited in the SEC’s complaint – general token sales, Coinbase Prime for institutional customers, Coinbase Wallet, and the exchange’s staking service – are within the SEC’s scope. claimed to have deviated from it.

Failla’s ruling completely rejected Coinbase’s argument that ‘cryptocurrency’ is too revolutionary to be included in existing securities laws. According to Failla, the SEC’s “well-argued allegations… plausibly support the SEC’s contention that Coinbase operated as an unregistered securities intermediary.”

Failla continued, “The ‘crypto’ nomenclature may be recent, but the transactions at issue fall within the framework that courts have used to identify securities for nearly 80 years. The court also ruled that the SEC properly alleged that Coinbase engaged in the offering and sale of unregistered securities through its staking program.

Failla also rejected Coinbase’s long-standing claim that the SEC violated the Administrative Procedure Act (APA), which governs how the agency writes its rules. Coinbase made this claim based on the fact that the SEC has repeatedly rejected the exchange’s demands for cryptocurrency-related regulation. The SEC argues that existing securities laws are flexible enough to apply to digital assets.

Failla ruled that the SEC did not violate Coinbase’s rights by failing to provide “fair notice” that the tokens were in fact securities.

“The SEC is not promulgating new regulatory policies, but is simply engaging in a fact-driven application of existing standards (an application that Coinbase has also made) to determine whether specific transactions involving crypto assets meet the characteristics of an ‘investment.’ contract.'”

Failla’s sentencing is by no means the end of this story. Her ruling merely confirmed that the case would proceed to trial. But her outright rejection of Coinbase’s securities claims, which she seemed to be on the fence about during oral arguments, doesn’t bode well for the final outcome of the case. And this could have a ripple effect on the legions of ‘crypto brethren’ who continue to act as if the rules don’t apply.

Failla threw Coinbase a consolation prize by granting its request to dismiss the SEC’s claim that Coinbase acted as an unregistered broker by offering a wallet application to its customers.

“The factual allegations regarding Wallet are insufficient to support a plausible inference that Coinbase ‘engaged in the business of conducting securities transactions for the accounts of others’ through the Wallet application.”

The Wallet ruling was celebrated not only by Coinbase executives but also more broadly.
The decentralized finance (DeFi) community argues that DeFi app developers now have strong legal rulings they can use against future regulatory lawsuits of this kind.

When life hands you lemons

Paul Grewal, Coinbase’s chief legal officer, put a brave face on Failla’s ruling. Proverb, “We are prepared for this.” He added that everyone at Coinbase understands that these types of moves “are almost always rejected.” But at the time of oral argument in January, Grewal said Coinbase remained “confident in our legal claims.”

Failla’s ruling comes shortly after another federal judge ruled that tokens traded on Coinbase are securities transactions. The ruling in the case of a former Coinbase employee who traded illegally based on inside knowledge of a new token listing found that the tokens involved met the Howey test criteria for identifying securities that require registration with the SEC.

This series of alleged legal brushbacks does not bode well for Coinbase’s appeal, with the SEC refusing to implement a “new regulatory framework” for digital assets that Coinbase claims it so desperately wants. On March 11, Coinbase filed a petition with the U.S. Court of Appeals for the Third Circuit requesting a review of the SEC’s recent rejection of the exchange’s claims for “regulatory clarity.”

Coinbase asked the Third Circuit to vacate the SEC’s December order and “direct the agency to begin the long-overdue rulemaking process.” Coinbase takes issue with the SEC’s “succinct” denial letter and the regulator’s “inapplicable, inadequate and still-evolving securities law requirements.”

Grewal, according to Coinbase’s filing tweeted His thoughts on the matter. Grewal argued that the SEC has historically “acknowledged the limits of its authority over digital assets, asked Congress to grant additional authority… and almost overnight, the SEC mandated that it already had the authority” and began cracking cryptocurrencies. .

Grewal omits the inconvenient truth that Congress has been dysfunctional for years. As SEC Chairman Gary Gensler pointed out, digital asset investors are entitled to the protections of U.S. securities laws, so their waiver of liability forced the SEC to step into this vacuum. Coinbase appears to be too eager to clip the SEC’s wings and restore its lack of oversight/consequences.

One step forward, five steps back

Whatever influence Grewal wants to have on the latest legal developments, the court is clearly fully aware of ‘encryption’ illegality and is certainly making its feelings known.

This was abundantly clear in the 25-year sentence handed down to FTX founder Sam Bankman-Fried on March 28, and will be no different when SBF’s former rival Changpeng ‘CZ’ Zhao is sentenced on April 30 for criminal activity on the Binance exchange. It will. Other cases, including Alex ‘Celsius’ Mashinsky, Richard ‘Hex’ Heart, and (eventually) Tether and Digital Money Group (DCG) president Barry Silbert, would accelerate this forced march toward compliance.

In cryptocurrency one Notable wins under that belt. Coinbase is a ‘platinum’ member of COPA, a cabal of cryptocurrency experts and Silicon Valley giants that recently celebrated its victory over Craig Wright in a UK court. The Justice Department overseeing the case ruled that Wright failed to prove he was the real person under the pseudonym Satoshi Nakamoto, who is said to have written the 2008 Bitcoin white paper.

While COPA celebrates its victory over Wright, we would make the brave prediction that COPA’s attacks on the Wright-backed BSV blockchain will continue. Wright has always represented COPA’s broader fight against BSV’s belief that (a) what Satoshi has created is more than utility-free ‘digital gold’ and (b) that the data processing technology at the core of BSV is infinitely more valuable to the enterprise. It seemed like he was doing it. And the government is more than a foolish belief that ‘the numbers are going up’.

COPA’s victory over Wright was a personal victory for the man. But BSV is never about any one individual. Wright may have lost, but BSV technology will endure, preserving Satoshi’s original vision for Bitcoin. COPA and similar visions seem determined to be erased from the public consciousness.

See: Digital currency regulation and the role of the BSV blockchain

Are you new to blockchain? To learn more about blockchain technology, check out CoinGeek’s Blockchain for Beginners section, our ultimate resource guide.