Will a judge dismiss the SEC’s lawsuit against Coinbase? Experts have different opinions.

adminJanuary 27, 2024

Experts have mixed feelings about the possibility that a New York judge will dismiss the case brought by the Securities and Exchange Commission (SEC) against Coinbase.

Last week, New York District Judge Katherine Polk Failla questioned both the SEC and the exchange for more than four hours during oral arguments. Coinbase was sued by the SEC last year for operating as an unregistered exchange, broker, and clearing agent. Regulators have also raised issues with Coinbase’s staking and wallet services.

coinbase In refuting the SEC’s claims, it argued that the case was as follows: fired It accuses regulators of taking “regulation by enforcement approach.”

Judge Faila may decide to dismiss the case, experts say. Elliott Stein, senior litigation analyst at Bloomberg Intelligence, gave Coinbase a 70% chance of beating the SEC. post last week.

“Our argument: There is a 70% chance that Coinbase will beat the SEC, if not outright in this move, then later,” Stein wrote. “Even if the case survives, I think there’s a good chance it will reach the Supreme Court and Howey’s scope will be narrowed,” Stein said, referring to a test based on a 1946 U.S. Supreme Court case that the SEC frequently cites when determining whether assets are assets. I wrote: security.

Stein said during the hearing that he believes Coinbase will likely be dismissed in relation to trading assets on the platform, but not in terms of the staking and wallet claims filed by the agency.

“Coming out of the hearing, I thought Coinbase performed much better than we expected,” Stein said in an interview.

Judge Failla took the SEC to task at a hearing last week, directly questioning lawyers about what constitutes a security and expressing concern that its definition of a security may be too broad.

Stein said Judge Failla was skeptical of the SEC’s theory of security composition, adding that Coinbase also made compelling arguments for its wallet and staking claims.

difficult question

Stein said he may be fired in part because of Judge Failla’s questioning at last week’s hearing.

“Her questioning was very thorough and challenging on both sides, but she expressed concerns about the SEC’s theory of what constitutes an investment agreement,” Stein said.

As for why Stein specifically says there’s a 70% chance, he said he feels confident.

“We try not to make it a 50/50 decision,” Stein said. “60% would suggest this is a very close case. I think some of this is close. But I am quite confident in the trading claims and the broker claims those claims will be dismissed. The staking claims will also be dismissed. It will be.”

But the incident may continue

Others say the case will continue, but IIf the judge denies Coinbase’s motion, discovery will proceed.. Once discovery is concluded, both the SEC and Coinbase can move for summary judgment. If the judge isn’t convinced, it will go to trial and go to a jury, but I don’t think that will happen until 2025.

Samson Enzer, a partner at Cahill Gordon & Reindel LLP, said it is a very low bar for the SEC to allege sufficient claims to reach discovery. Enzer is a former federal prosecutor for the Southern District of New York, where the Coinbase case occurred. Enzer also represents Coinbase, but is not representing Coinbase in this particular lawsuit.

“I don’t expect the judge to dismiss the case at this stage,” Enzer said. “That doesn’t mean she won’t dismiss or refine the case after discovery either on her summary judgment or at trial, but she doesn’t expect to dismiss the case at this stage.”

The question now before the court is whether, assuming what the SEC said is true, there are enough viable arguments to proceed with discovery, Enzer said.

Enzer added that it would be difficult for Judge Failla to dismiss the case at this stage.

If Judge Failla decides to dismiss any claims, it would be devastating for the cryptocurrency industry, Enzer said. Failla’s decision will be persuasive but not binding, he added. Other district courts may disagree with her decision, Enzer said.

What about Binance?

Binance also filed a lawsuit against the SEC in a D.C. court on Monday, seeking to have the suit dismissed. Judge Amy Berman Jackson is overseeing the case.

The SEC sued Binance Holdings and its former CEO Changpeng Zhao. June, It accused the cryptocurrency exchange of lying to customers, failing to restrict U.S. investors from accessing Binance.com, misdirecting capital to segregated investment funds owned by Zhao, and operating as an unregistered exchange. The SEC also stated that 12 tokens on the exchange were securities. Includes BNB and BUSD.

“I assure you, but this is obviously speculation. However, based on her comments during oral argument, I believe she at least dismissed the SEC’s claim that the BUSD stablecoin was offered or sold as a security. Here is the SEC’s argument in response: “It’s incredibly weak,” Enzer said, adding that the judge saw that point.

The remaining claims will continue to be discovered, Enzer said. He said Binance is also a customer, but not in this particular case.

In both cases, the two judges were taking the arguments presented by the defendants very seriously, said partner Daniel Davis. Katten Muchin Rosenman LLP and fPreviously, he was general counsel of the Commodity Futures Trading Commission. Davis is also listed as an attorney for BAM Management US Holdings in the case between Binance and the SEC.

“It’s definitely a good sign,” Davis said. “I can’t predict what the judges will rule, but I certainly appreciate that both judges seem to be considering the claims and their implications very seriously.”

Davis said Binance, Coinbase, or both could be dissolved.

“I think it’s certainly possible that certain claims could be dismissed,” Davis said. “It’s very difficult to predict.”

Bloomberg’s Stein said Binance has many claims that are unrelated to the Coinbase incident.

“It is certainly a broad case,” Stein said, but noted that Judge Jackson expressed similar concerns to Judge Failla that the SEC’s definition of securities was too broad.

what future plans

Stein said he expects Judge Failla to make a decision on Coinbase within a few weeks, given how much thought he has put into the case.

There are currently three major cases between the SEC and other cryptocurrency exchanges, including Binance, Coinbase, and Kraken, all of which are ongoing in various courts across the country.

“It’s possible that these issues will be appealed, and there may be some differences in how the federal appellate courts rule, which increases the likelihood that these issues will eventually end up in the Supreme Court,” Stein said.

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adminJanuary 27, 2024