The see-saw court battle over whether Coinbase is an unregistered securities exchange/broker-dealer/clearing agency has flipped, this time with the SEC dropping low. On January 7, 2025, the U.S. District Court for the Southern District of New York (“SDNY”) granted Coinbase the rare right to argue, before trial, in front of the U.S. District Court of Appeals for the Second Circuit (“Second Circuit”) that the SEC’s case should be dismissed.
To recap, the SEC filed a complaint in the SDNY against Coinbase in 2023 for operating as an unregistered exchange, broker, and clearing agency. The SEC also alleged that Coinbase failed to register the offer and sale of its crypto assets through its Staking Program.
In a victory for the SEC, on March 27, 2024, the SDNY denied Coinbase’s Motion for Judgment on the Pleadings, holding that Coinbase couldn’t show, as a matter of law, that the tokens in the complaint were non-securities.
However, last week, on January 7, 2025, the SDNY granted Coinbase’s motion for an interlocutory appeal of the Court’s prior ruling, marking a major victory for Coinbase and effectively halting the SEC’s lawsuit against it.
The Court ruled that the Second Circuit should determine whether “Coinbase intermediated transactions involv[e] investment contracts, and thus securities.” The Court emphasized that resolving this “central question” would provide guidance on conflicting authority on how to apply the Howey test to crypto assets, specifically because two other cases decided in the SDNY appear to come to opposite conclusions. In the Terraform Labs case, the Court rejected the need for a direct promise or contract between the issuer or promoter, on the one hand, and the purchaser, on the other hand, while in the Ripple case, the Court did require such a promise or contract. Coinbase has argued that the Ripple judge got it right, which they will now argue to the Second Circuit.
Legal Tokens
Coinbase’s Chief Legal Officer, Paul Grewal, hailed this decision as a “careful consideration” by the Court and declared on the social media platform X, “on to the Second Circuit we go.” Because the district court proceedings will be halted in the meantime and these types of interlocutory appeals are rarely granted, this is a big win for Coinbase. As with most crypto legal questions, whether they win at the Second Circuit is anybody’s guess.
