LUCKNOW (CoinChapter.com) — U.S. courts give yet another judgment that throws Gary Gensler under the bus for his ongoing crypto witchhunt.
A U.S. district judge has delivered a mixed ruling in the ongoing legal battle between the Securities and Exchange Commission (SEC) and Coinbase. The judge denied Coinbase’s bid to dismiss the SEC’s lawsuit regarding its crypto staking offering. However, she sided with Coinbase on a key aspect of the case – the Coinbase Wallet.
Coinbase Wallet Not a Broker, Ruling a ‘Giant Win’ for DeFi
In her March 27 ruling, Judge Katherine Failla determined that the SEC failed to allege that Coinbase conducted brokerage activity through Coinbase Wallet sufficiently. This self-custody wallet, which allows users to retain full control of their crypto assets, conducts brokerage activities. Crypto lawyers and industry advocates see this decision as a significant win for self-custody wallets and decentralized finance (DeFi) applications.
Zach Rosenberg, general counsel at Ethena Labs, described the ruling as a “pretty giant win for browser-based wallet extensions, application front ends, and other similar applications.”
He highlighted that the court’s rationale – that Coinbase helping Wallet users find token prices does not constitute acting as a broker – could be leveraged by DeFi app developers facing similar lawsuits.
The court’s ruling on Coinbase Wallet may provide a legal precedent for DeFi app developers. They could potentially cite this ruling in their defense against allegations of operating as unregistered brokers.
Marisa Tashman Coppel, legal head of the Blockchain Association, expressed satisfaction with the court’s decision to “curb massive SEC overreach with regard to the Coinbase Wallet allegations.”
Mike Selig, a partner at the law firm Willkie Farr & Gallagher, also commented on the ruling on X. He said that dismissing the allegations against Coinbase Wallet represented a “significant setback” for the SEC’s position. Selig suggested that the SEC aimed to discourage the development of peer-to-peer software, but the court’s decision did not support that objective.
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Not an Outright Win for Coinbase or Crypto Industry
However, not all industry voices viewed the ruling as an outright victory. Jake Chervinsky, legal counsel at crypto venture firm Variant, acknowledged some positives for DeFi but warned that “overall, SEC wins.”
It’s great for DeFi that Wallet is not a broker, and there’s good language on other issues,” he said. “But the court sided with the SEC (incorrectly, [in my opinion]) on several key issues.
Jake Chervinsky said.
He criticized the court’s adoption of the SEC’s theories on applying the Howey test to secondary market transactions and defining a “common enterprise” for investment contracts.
This is a disappointing outcome, But it’s only the beginning — not the end — of the SEC’s case against Coinbase specifically.
Chervinsky said.
Despite the mixed outcome, the case will now proceed to the discovery phase. At this phase, Coinbase and the SEC will gather evidence to support their respective arguments.
The SEC filed a lawsuit against Coinbase in June 2023. It alleged that the exchange listed 13 tokens deemed securities and operated as an unlicensed exchange and broker-dealer. However, Coinbase had denied this claim.
