Coinbase must face US securities regulator's lawsuit

A federal judge in Manhattan on Wednesday said the US securities regulator's lawsuit against Coinbase can move forward, but dismissed one claim the agency made against the largest US cryptocurrency exchange.

The decision partly granted Coinbase's motion to dismiss the Securities and Exchange Commission's lawsuit alleging the company is flouting its rules. It is a partial win for Coinbase in what could be a lengthy and expensive court battle.

The SEC sued Coinbase in June, saying the firm facilitated trading of at least 13 crypto tokens that should have been registered as securities and was operating illegally as a national securities exchange, broker and clearing agency without registering with the regulator.

The case against the world's largest publicly traded cryptocurrency exchange is a high-water mark in the regulator's campaign to apply US securities law to the digital asset companies.

To do so, the SEC has largely relied on a US Supreme Court ruling setting out a test for when an investment constitutes a security. A key piece is whether returns "come solely from the efforts of others."

Coinbase has argued that crypto assets, unlike stocks and bonds, do not meet that definition, a position held by the vast majority of the crypto industry.

In the few cases that have gone to court, judges have mostly agreed with the SEC that the crypto assets at issue were securities, which unlike assets such as commodities are strictly regulated, must be registered with the SEC by their issuer and require detailed disclosures to inform investors of potential risks.