Coinbase will face off against the SEC today following a series of back and forths with the regulator accusing Coinbase of operating as an unregistered securities exchange. The legal showdown, which will determine the fate of the giant exchange, will take place in a Manhattan Federal Court today, Jan. 17. The big question now is; what are the possibilities of Coinbase pulling off a win or favorable ruling in today’s court tussle?
A Brief Background
The SEC sprang into legal action against Coinbase with a two-fold charge back in June last year. First, for “operating as an unregistered securities exchange, broker, and clearing agency”and for the unregistered offer and sale of tokens (considered by the agency as securities) in its stake-as-a-service program.
Coinbase later filed a Motion to Dismiss in August last year, refuting the SEC’s claims and stating that the SEC was overstepping its boundaries. According to the document, the SEC had agreed that it lacked the regulatory authority over the crypto exchanges and only Congress could confer it”. But fast forward to late 2022, the SEC had changed its position, with Chair Gensler saying that “the SEC already had “enough authority” in existing securities laws to fully regulate digital asset platforms.“
Another interesting twist to the case is where Coinbase highlights that its core services, the spot exchange, Prime, Wallet, and staking had all been in operation before the SEC declared its registration statement effective in 2021. In essence, the SEC had done a thorough 6-month review on Coinbase before declaring all its offerings safe and beneficial to the public.
“…By that declaration, the SEC necessarily found that Coinbase’s public listing served “the public interest and the protection of investors” and that “adequa[te]” information about Coinbase and its offerings was “available to the public.” stated the filing.
Possible Outcomes in the SEC Vs Coinbase Case
On the possible permutations of today’s hearing, some notable industry figures have penned down what to expect. James A. Murphy of Bala Law Group Philadelphia, in a tweet says we should expect four possible outcomes with a possibility of gray patches or technicalities to them.
The first possibility, says Murphy, is that the judge denies the Coinbase motion. That will only be possible if the SEC can prove their case against Coinbase beyond every reasonable doubt – with validating evidence. In that case enters a discovery phase, which may last a year or longer. Within this discovery phase, both parties will exchange information in preparation for a summary judgment.
Murphy says the second possibility is the Judge granting Coinbase’s motion with prejudice. That implies the whole case will be dismissed (and done with) by the District Court. The SEC can then choose to appeal the decision at the Second Circuit Court of Appeals.
The third probability is that the court grants Coinbase’s motion without prejudice, which allows the SEC to amend any deficiencies (noted by the Judge). However, “if the court rules the SEC lacks authority from Congress to regulate crypto exchanges,” says Murphy, then there may not be any chance for amendments.
Finally, the court may grant the motion relating to the 13 cryptocurrencies not being securities – to Coinbase’s favor – but deny the motion with respect to Coinbase operating an unregistered offer and sale of tokens in its staking service.
There’s a bigger probability the court won’t rule at today’s hearing, but the judge “could leave some hints through her questioning” believes Murphy as he plans to be in attendance and cover the whole hearing. Jeremy Hogan will also be in attendance with other industry leaders.