Coinbase Secures Legal Pause in SEC Dispute with Interlocutory Appeal

A US federal judge has allowed Coinbase to pursue an interlocutory appeal in its legal battle with the SEC, pausing the ongoing case and escalating the dispute to a higher court.

Federal Judge Allows Coinbase Appeal

Coinbase secured a significant development in its legal battle with the US Securities and Exchange Commission (SEC) as Judge Katherine Polk Failla of the Southern District of New York granted the crypto exchange‘s motion for an interlocutory appeal. The appeal temporarily pauses the ongoing district court litigation, allowing Coinbase to seek guidance from the Second Circuit Court of Appeals on the validity of the SEC’s allegations.

SEC Accusations Against Coinbase

The SEC‘s complaint, filed in June 2023, accuses Coinbase of operating as an unregistered securities exchange, broker, and clearing agency since at least 2019. The SEC argued that certain transactions on Coinbase involved crypto-assets that qualify as investment contracts under federal securities laws. Coinbase has denied these allegations, asserting that the SEC failed to classify these assets as securities when it authorized the company’s public listing.

Conflicting Legal Interpretations

Judge Failla acknowledged conflicting rulings from other cases involving the SEC, such as those against Terraform Labs and Ripple Labs. These varying interpretations of what constitutes a security have created legal uncertainty. Notably, a judge in the Ripple case ruled that XRP was not a security concerning programmatic sales on crypto exchanges. Citing these discrepancies, Judge Failla emphasized the need for appellate guidance.

She ruled,

“Although the Court does not appreciate, and will not co-sign, Coinbase‘s efforts to cast aspersions on the SEC’s approach to crypto-assets, […] conflicting decisions on an important legal issue necessitate the Second Circuits guidance.”

Coinbases Response and Next Steps

Paul Grewal, Coinbases chief legal officer, celebrated the courts decision, stating on X (formerly Twitter),

“Over the strenuous objection of @SECGov, Judge Failla has GRANTED our motion for leave to pursue an interlocutory appeal and STAYED the district court litigation. […] On to the Second Circuit we go.”

Coinbase has long argued that the SEC‘s case lacks merit, pointing to its 177-page defense which highlights inconsistencies in the agency’s approach. Coinbase also criticized the SEC for denying a rulemaking petition in December 2023 and for delaying key document disclosures requested by the exchange.

Implications for the Crypto Industry

The SECs aggressive stance on regulating crypto through enforcement actions has drawn widespread criticism within the industry. Chair Gary Gensler has maintained that existing laws adequately cover the crypto market, a position contested by SEC Commissioners Hester Peirce and Mark Uyeda.

This appeal offers Coinbase temporary relief; however, the cases resolution could set critical precedents for how cryptocurrencies are regulated in the United States.