Coinbase SEC Lawsuit Will Continue With Successful Appeal

Key Points:

• A federal judge allowed Coinbase to file an interlocutory appeal in its SEC lawsuit, pausing the case and sending it to the Second Circuit Court of Appeals.
• The appeal will address whether an investment contract requires an actual contract in the Coinbase SEC lawsuit.

A federal judge granted Coinbase an interlocutory appeal of its lawsuit against the U.S. Securities and Exchange Commission and thereby hit pause on the case.

Read more: Coinbase International’s Trading Volume Increases 124% During the Week

Coinbase SEC Lawsuit To Move Forwards but at an Advantage to the Exchange

Judge Katherine Polk Failla of the United States District Court for the Southern District of New York on January 7 allowed the Coinbase SEC lawsuit to continue to the Second Circuit Court of Appeals.

In June 2023, the SEC sued Coinbase, alleging it operated as an unregistered exchange, broker and clearing agency. The regulator also raised its concern with the firm’s staking and wallet services. Judge Failla previously dismissed claims pertaining to wallet services while allowing the rest to stand.

Interlocutory appeals are rarely granted, allowing parties to pursue appellate review when a case is not yet concluded. Coinbase’s Chief Legal Officer, Paul Grewal, cheered the news on social media.

Lawsuit Stayed as Regulation Remains Up in the Air

Judge Failla acknowledged that the resolution of the legal questions presented by this case primarily, how the so-called Howey Test applies to crypto assets-is a matter of urgency because the test is applied as a way of determining whether specific transactions represent investment contracts under the U.S. securities law.

“There is substantial ground for difference of opinion,” Judge Failla wrote, citing decisions that have produced conflicting interpretations of the Howey Test in the context of crypto-assets. In fact, she said, the Coinbase SEC lawsuit presents a “difficult issue of first impression” for the Second Circuit.

The appeal will focus on whether an investment contract needs an actual contract- a question at the heart of the SEC’s allegations. Proceedings in the district court have been stayed pending the Second Circuit’s decision.