Coinbase Case Continues Says Judge Failla But DeFi Gets New Momentum

Coinbase MTD – decision

Yesterday, District Judge Katherine Failla rendered her decision on Coinbase’s motion-to-dismiss (MTD), which was filed last August, in the enforcement action the Securities and Exchange Commission (SEC) brought against the company last June.

See Judge Failla’s filing (PDF).

You may recall that Judge Failla dismissed the Uniswap case last fall – a fraud class-action lawsuit brought by 6 individual investors against the Uniswap protocol. Her decision at the time showed an embrace of principles of decentralization.

And even though the tone of January’s MTD hearing seemed to bode well for Coinbase and its MTD, the case was allowed to proceed except for one part where Judge Failla said, “…the Court agrees with Defendants that they are entitled to dismissal of the claim that Coinbase acts as an unregistered broker by making its Wallet application available to customers.”

Coinbase MTD – Coinbase reaction

Coinbase chief legal officer Paul Grewal said about the decision, “Today, the Court decided that our SEC case will move forward on most of the claims, but dismissed the claims against Coinbase Wallet. We were prepared for this, and we look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation…” Read his thread on X.

Grewal concluded on X: “Looking ahead, we remain confident in our legal arguments, we look forward to proving we’re right, we are eager for the opportunity to take discovery from the SEC for the first time, and we appreciate the Court’s continued consideration of our case…”

Both Grewal and Coinbase chief policy officer Faryar Shirzad stressed the need for Congress and new digital assets legislation amidst the courtroom battles. Shirzad wrote, “It’s ultimately the role of Congress to create a federal framework for regulating crypto and protecting American innovation. We’re thankful to see legislators on both sides of the aisle advancing thoughtful measures to this end.” Read more from Shirzad on X.

Coinbase MTD – more reaction

The fact the case was largely allowed to proceed was not unexpected as legal experts had warned that most MTD’s are unsuccessful in that the bar to have such cases proceed is “low.”

Crypto lawyer James “MetaLaw” Murphy had said right after January’s MTD hearing, “My guess (and it’s just a guess) is [Judge Failla] is going to allow the case to go forward to discovery, like the Ripple case. But, I continue to believe, as noted in my pinned tweet, that Coinbase will ultimately win the case in the end.” Read his January thread on X.

Yesterday, Murphy said of Judge Failla’s ruling, “Not a surprise” and pointed to his January comments.

DeFi Education Fund counsel Amanda Tuminelli reviewed the MJOP (motion for judgment on the pleadings) and said of the Coinbase Wallet dismissal ” Not to pollyanna, but the decision to dismiss the broker claim as it pertains to Coinbase Wallet is a real bright spot, especially for [decentralized finance]. Holding that Wallet does not ‘undertake routing activities,’ Coinbase ‘has no control over a user’s crypto-assets or transactions via Wallet’ and the user ‘is the sole decision-maker when it comes to transactions,’ and Wallet ‘simply provides the technical infrastructure for users to arrange transactions on other DEXs in the market’ is a real acknowledgment of the tech at issue here.” Read her thoughtful analysis.

Crypto Council of Innovation Chief Legal/Policy Officer Ji Kim commented on X, “…it is [important] to keep the procedural context in mind. This, again, was a ‘motion for judgment on the pleadings,’ which means that the court is required to assume that all plead facts are true in order to see if the SEC ‘plausibly’ stated a claim against [Coinbase]–this only determines whether the case will continue to discovery as a next step. This does not mean that the SEC’s facts or remaining claims will win out.” Read Kim’s thread.

Coinbase MTD – media coverage

    • SEC scores big win in lawsuit against crypto exchange Coinbase – CNBC
    • Judge rejects Coinbase’s ‘major questions doctrine’ argument in landmark SEC case (subscription) – Fortune
    • Judge rejects Coinbase’s attempt to throw out SEC case (subscription) – Politico
    • Coinbase Loses Most of Motion to Dismiss SEC Lawsuit – CoinDesk

still more tips

UK fund tokenization report: expand to public permissioned blockchains – Ledger Insights

Crypto miner, Pennsylvania hit with lawsuit over pollution from bitcoin mine – Reuters

The Science of Crypto Forensics Survives a Court Battle—for Now – Wired

Opinion: Crypto’s new clothes may not prove a good fit – Financial Times

The Crypto World Has a New Villain (Barry Silbert) – New York Magazine