SEC scores big win in lawsuit against crypto exchange Coinbase

The Securities and Exchange Commission scored a major win in its lawsuit against Coinbase on Wednesday, as a judge ruled that its claim that the cryptocurrency exchange engaged in unregistered sales of securities could be heard by a jury at trial.

Coinbase shares fell around 2.5% lower on news of the ruling in Manhattan federal court rejecting its bid to dismiss the SEC’s complaint. The company did not immediately reply to CNBC’s request for comment.

The regulator first filed suit against Coinbase in June, alleging that the company was acting as an unregistered broker and exchange. The agency also demanded the company be “permanently restrained and enjoined” from continuing to do so.

“The ‘crypto’ nomenclature may be of recent vintage, but the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years,” U.S. District Judge Katherine Polk Failla wrote in her ruling.

“The Court finds that the SEC adequately alleges that Coinbase, through its Staking Program, engaged in the unregistered offer and sale of securities,” Failla wrote.

The judge elsewhere in that ruling agreed to dismiss the SEC’s claim in the lawsuit that Coinbase acted as an unregistered broker by making its Wallet application available to customers.

The news comes as Coinbase takes on a bigger role in Wall Street’s adoption of cryptocurrency. In January, the SEC approved a raft of U.S. spot bitcoin exchange-traded funds. Many of these ETFs have partnered with Coinbase as their custody partner.

These U.S. spot funds have seen record flows since launching in January. Collectively, they have brought in around $52 billion.

In June, SEC Chair Gary Gensler said that trading platforms like Coinbase “call themselves exchanges” but were “commingling a number of functions.”

“We don’t see the New York Stock Exchange operating a hedge fund,” Gensler said on CNBC in June.