A US judge has temporarily halted proceedings in the legal case between Coinbase and the SEC, allowing the crypto exchange to seek a higher court’s opinion on a pivotal legal question. On January 7, District Judge Katherine Polk Failla approved Coinbase’s request to appeal a critical issue to an appellate court. The appeal will address whether certain digital assets traded on Coinbase qualify as securities. It will also clarify if transactions involving these assets require an investment contract under the Howey test. Most importantly, the case proceedings will remain on hold until the appeal is resolved.
“Over the strenuous objection of the SEC, Judge Failla has granted our motion for leave to pursue an interlocutory appeal and stayed the district court litigation. We appreciate the Court’s careful consideration. On to the Second Circuit we go,” wrote Coinbase Chief Legal Officer Paul Grewal. Coinbase has maintained that the tokens traded on its platform do not meet the legal criteria for securities. The company argues that token issuers do not owe obligations to buyers, failing to satisfy the Howey test’s definition of a security.
Also, judge Failla acknowledged this contention. She stated that the legal question presents substantial grounds for differing opinions. Resolving this issue could expedite the conclusion of the SEC’s enforcement action. The decision comes at a pivotal moment for the crypto sector. The incoming administration of President-elect Donald Trump signals potential policy shifts for the industry. Under Gary Gensler’s direction, the SEC initiated several high-profile lawsuits against major crypto platforms over the securities law. Now, Paul Atkins, the nominated to chair the SEC, is anticipated to deprioritize crypto-related enforcement cases initiated under previous leadership.
The SEC filed the lawsuit against Coinbase back in 2023. It accuses the company of facilitating the trading of at least 13 tokens that the agency contends should have been registered as securities. While the case largely proceeded after a 2024 ruling, claims related to Coinbase’s wallet services were dismissed. Coinbase has also criticized the SEC for approving its public listing while later challenging the legality of its operations.
In a separate development, Coinbase secured a regulatory win earlier the same day by obtaining a license from the New York regulators. The approval allows the exchange to offer more new products to New York residents. Coinbase has also shared new allegations regarding efforts by federal regulators to curb banks’ involvement in cryptocy activities. The claims have intensified scrutiny of regulatory practices, sparking accusations of a renewed effort, dubbed “Operation Chokepoint 2.0,” to stifle the crypto industry.
As Congress considers new legislation to clarify the regulatory framework for digital assets, the industry is lobbying for policies that support its growth. While cases like this could eventually reach the Supreme Court, the outcome may lose relevance if lawmakers establish definitive rules governing cryptocy in the US.
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