Coinbase Wins Dismissal of SEC Lawsuit, Signaling Thaw in Crypto Industry Relations

This morning Coinbase announced that it reached an agreement with the Securities and Exchange Commission (SEC), which sued the company in June 2023

The Securities and Exchange Commission (SEC) has agreed to fully dismiss its administrative lawsuit against Coinbase, a major cryptocurrency exchange. The dismissal will come without any monetary penalties or changes to Coinbase's business practices.

The SEC filed the lawsuit against Coinbase in June 2023, alleging that the exchange operated as an unlicensed national securities exchange and engaged in other violations. Coinbase has maintained that the SEC's allegations were unfounded and that the exchange was fully compliant with all applicable laws.

The dismissal of the SEC's case is a significant victory for Coinbase and the cryptocurrency industry. The SEC's lawsuit against Coinbase was seen by many as an attempt by the agency to crack down on the crypto industry and assert its jurisdiction over digital assets.

Coinbase's Chief Legal Officer, Paul Grewal, said that the exchange was not interested in paying a fine but would not object if the SEC wanted to withdraw the case.

“We were not looking to pay some fine. But if they [the SEC] wanted to right the wrong, admit that this was a huge mistake, and withdraw the case, we wouldn’t stand in their way. That’s what ultimately has come to pass today.”

The dismissal of the SEC's case will now go before the three current commissioners for a vote next Thursday. The SEC declined to comment on the potential dismissal when reached for comment.

Coinbase decided to make the news public today because it will be filing an 8-K form with the SEC, which would have made the information public regardless. Companies registered with the SEC must file these forms to announce major events that shareholders should know about.

The fact that the case was dismissed with prejudice, as opposed to a settlement with even a nominal fine, is a massive win for the industry and a vindication of its view that the SEC’s position was unfair.

“They sued us without any basis in law. They sued us without telling us what the rules were,” Grewal says. “They dropped on Coinbase and the rest of the industry, effectively a tax on American innovation that cost hundreds of millions, if not billions of dollars.”

The dismissal is also expected to pave the way for similar resolutions in the SEC's pending lawsuits against other cryptocurrency exchanges and platforms, including Binance, Kraken, and Uniswap. Grewal expressed hope that these firms will see similar resolutions in the near term.

“It’ll ultimately be up to the SEC and those other parties to kind of hammer that out,” he says. “But we think we’ve offered a template or a model for others to follow, and I’m confident we’re going to see peace across the industry break out in short order.”

One former SEC official familiar with the cases, who spoke to Unchained on the condition of anonymity agreed that similar dismissals are likely.

“I would think that if they are dismissing this, that we’ll see in the coming days all the other cases get dismissed. I don’t see how they can keep those cases.”

A possible exception that the former official pointed to was the Binance case because that lawsuit, also filed in June 2023, contained allegations of fraud and manipulative trading that were not included in the other complaints. The former official noted that the SEC may be reluctant to drop those charges because they could lead to actual customer harm.

On February 13th a federal judge approved a joint request from Binance and the SEC to allow a 60-day pause on the case, citing a pending framework that could provide greater regulatory clarity for the industry.

Coinbase stock price rose by more than 5% in pre-market trading on the news of the SEC dismissal. Shares of Coinbase are up by more than 60% year-to-date.