The legal battle between the United States Securities and Exchange Commission (SEC) and Coinbase, a cryptocurrency exchange, has taken an unexpected turn of events. The transcript on July 13 reveals that Judge Katherine Polk Failla, who presides over the pre-motion conference, expressed sentiments that some community commentators now describe as aligning with Coinbase’s defense.
Judge Aligns with Coinbase’s Argument
The information was shared on Twitter by a lawyer, MetaLawMan. And in his view, Judge Failla’s comments align with Coinbase on a crucial argument.
In a lawsuit filed in New York, the regulator alleges that Coinbase operates as a broker-dealer, clearinghouse, and exchange for unregistered crypto asset securities without regulatory oversight. However, the Judge referenced Coinbase’s belief that their actions, contrary to the rulings of the SEC, were acceptable, as they were in line with what the SEC allowed during the IPO registration (S-1) issuance.
According to the transcript, Judge Failla said:
It’s not crazy in the Failla parlance for Coinbase to think that what they were doing was OK because it was exactly what you let them do when they issued the S-1 [IPO registration].
This quote, the lawyer says, doesn’t seem to favor the SEC, indicating that the regulator’s legal team would have potential challenges ahead of defending their stance.
The exchange employed the Major Questions Doctrine to dismiss the case, which the Judge believed was a “heavily footnoted preliminary statement.” In response, the SEC is seeking to strike the motion to dismiss.
Implications Of The Lawsuit
How the case shapes up is being tracked considering its weight and ramification. Subsequently, how the judge rules eventually will likely have far-reaching consequences for crypto assets, including Bitcoin and even Coinbase’s share price.
Steven Peikin, the exchange’s counsel, supported the Judge’s skepticism toward the SEC argument that approving Coinbase’s IPO prospectus, the S-1 form, does not imply consent to their business model.
This is because, in 2021, Coinbase received approval from the SEC to sell its shares after an extensive, cover-to-cover review of the entire filings, ensuring that it complies with the applicable accounting standards and required federal securities laws and regulations. Such a previous extensive review and approval brings to question the SEC’s right and authority to bring enforcement actions on Coinbase.
If Coinbase prevails in the case, it could set a precedent for other cryptocurrency exchanges operating in the United States. Currently, Binance, another cryptocurrency exchange, and its CEO, Changpeng Zhao, are preparing to take on the SEC after they were also sued for similar ‘violations’ in early June.