Coinbase says SEC is ready to drop enforcement case

After a years-long battle against the SEC accusing it of operating as an unregistered securities platform in the US, Coinbase said it has been vindicated as the regulator has agreed in principle to dismiss its lawsuit.

The decision, which still requires approval from the SEC commissioners, marks a significant development in the agency’s approach to regulating the crypto industry.

Coinbase, which has contested the lawsuit since it was filed in June 2023, called the decision a validation of its position.

'Righting a wrong'

“We’ve always maintained that we were right on the facts and the law, and today’s announcement confirms that this case should never have been filed in the first place,” the company said in a statement titled "Righting a major wrong" on Friday.

According to Coinbase, the SEC had an opportunity to review its business model and scrutinize various disclosures before it went public in 2021. Two years later, the SEC under Gary Gensler sued the firm, which Coinbase said happened "despite absolutely nothing changing in our business model." 

The lawsuit was part of a broader push by the SEC to impose stricter oversight on digital asset firms following the collapse of crypto exchange FTX. The regulator had alleged that Coinbase was functioning as an unregistered exchange, broker, and clearing agency, arguing that many crypto tokens display the hallmarks of securities and therefore fall under SEC jurisdiction.

Paul Grewal, Coinbase’s chief legal officer, suggested that the resolution of the case could serve as a model for other pending regulatory disputes.

“Our ending the case will offer a template for the SEC to resolve other cases as well,” he told Bloomberg in an interview.

Despite this legal victory, Coinbase still faces ongoing regulatory challenges and an assortment of other cases related to its conflict with the SEC.

The firm is one of several prominent voices pushing for a reset on crypto regulation and legislation. During the most recent campaign season, it reportedly donated millions to committees that had a say in electing pro-crypto congressional candidates, and pledged $1 million to Trump's inaugural committee. In support of establishing new guidelines for stablecoins and digital asset market structure, it has been actively engaging with lawmakers and regulators.

“I am hoping now that we have the cloud of this litigation lifted, Coinbase and other companies can focus on drafting rules,” Grewal told Bloomberg. “The Gensler lawsuits made this impossible.”

Changes in SEC's crypto enforcement

Coinbase's declaration of victory came a day after the SEC launched its Cyber and Emerging Technologies Unit, a new division aimed at addressing cyber-related misconduct and protecting retail investors from fraud tied to emerging technologies. The unit, a smaller division than the agency's previous crypto enforcement division that will absorb its functions, will be led by Laura D’Allaird and will consist of about 30 fraud specialists and attorneys across various SEC offices.

In a Thursday announcement, Acting Chairman Mark Uyeda said the new unit was formed to enhance enforcement efforts while fostering responsible innovation.

“Under Laura’s leadership, this new unit will complement the work of the Crypto Task Force led by Commissioner Hester Peirce. Importantly, the new unit will also allow the SEC to deploy enforcement resources judiciously,” Uyeda said.

Apart from crypto fraud, the unit will focus on several priority areas including AI fraud, social media scams, hacking for nonpublic information, and cybersecurity compliance among regulated firms. It will also scrutinize blockchain-related misconduct and account takeovers at retail brokerage firms.