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Coinbase has 70% chance of full dismissal in SEC lawsuit: Litigation analyst

Bloomberg senior litigation analyst, Elliott Stein, has indicated he sees minimal likelihood of failure for cryptocurrency exchange Coinbase in its ongoing lawsuit against United States Securities and Exchange Commission (SEC). Stein forecasts a 70% chance of the exchange securing a full dismissal in the lawsuit.

In a recent post on Jan. 19 on X (formerly Twitter), Stein explained that before he went into the courtroom he was confident that Coinbase would be able to object successfully to certain SEC claims, but not those allegations relating to its staking rewards program and overall operational structure. 

However, his confidence shifted after the five-hour hearing:

“I went into SEC v. Coinbase hearing thinking COIN would, on this motion, win dismissal of SEC’s primary claims (concerning trading) but maybe not staking and broker claims. I left thinking COIN would win full dismissal.”

The SEC alleges that by staking customers’ assets, earning rewards on their behalf, and then returning them, Coinbase is engaging in the offer and sale of investment contracts, thereby falling under SEC regulation.

Furthermore, the regulator alleges that Coinbase was operating as an unregistered broker. Meanwhile, Coinbase has strongly refuted this, stating there is no easy way for a crypto exchange to register for a license. 

However, Stein explains that it was a turning point when Coinbase provided a more precise definition of an “investment contract” compared to the SEC.

“My view the one offered by Coinbase as more compelling, requiring investment in a business vs. just an ecosystem, along with an enforceable obligation,” he stated.

However, he referenced the recent Ripple v SEC case where Ripple achieved a partial victory in July 2023. The judge ruled that XRP (XRP) is not considered a security when it comes to retail sales on cryptocurrency exchanges. 

Stein suggests the decision around securities in this case, will have a domino effect into Coinbase’s lawsuit too.

“As the Ripple ruling in July suggested, sales of digital assets on public exchanges don’t fit neatly into the Howey test for what constitutes an investment contract,” he argued.

Related: Crypto Biz: Coinbase vs. SEC case will determine crypto tokens fate

On Jan. 17, Cointelegraph reported that United States District Judge Katherine Polk Failla heard arguments from the SEC and Coinbase on the crypto exchange’s motion for dismissal over a period of five hours.

In a notable point for the crypto community, Failla asked the SEC attorneys to explain why a digital token issuance would meet the Howey test, arguing the case was “too broad.”

The SEC filed a lawsuit against Coinbase on June 6, 2023, alleging that the crypto exchange violated federal securities laws.

The agency argued that 13 tokens listed on Coinbase were securities, including coins like Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), The Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP), NEAR (NEAR), Voyager (VGX), Dash (DASH) and Nexo (NEXO).

Magazine: Coinbase fights SEC in court, SBF’s parents seek lawsuit dismissal, and Bitcoin ETFs: Hodler’s Digest, Jan. 14-20