Judge Failla’s Early Rebuff to SEC Could Help Coinbase Gain Ground

United States Judge Katherine Polk Failla seems to have dealt the Securities and Exchange Commission (SEC) a huge blow that may give Coinbase an edge in their ongoing court hearing.

Legal Debacle Gets New Twist

To Judge Failla, the SEC is not clear enough in its definition and description of some of the claims it has made against crypto firms including staking. In its lawsuit against the American cryptocurrency exchange, Judge Faila asked the regulator to highlight the specific features of a token that make it an investment contract. 

The SEC has always regarded staking as an investment offering despite not giving a clear depiction of its definition of the product. The markets regulator went as far as suing Kraken Exchange for this offense in Q1 2023, for which the firm settled with the sum of $30 million.

Judge Failla, according to court transcripts now posits that the explanations from crypto companies gave her a better understanding of the subject in general.

“The Defi people, for example, have what I think is really fine amicus brief, explaining to me what the wallet really is. And what staking really is. And that actually, in some respects, makes more sense to me than the Commission’s description of it in the complaint,” she added.

This lack of clarity contributed to the Coinbase SEC dispute that has been ongoing for about a year now. The publicly traded firm has been pressuring the regulator to roll out a clear regulatory framework for the crypto industry in the United States to avoid unwarranted lawsuits and enforcement actions. It reached a point where Coinbase filed a writ of mandamus against the regulatory body.

Notably, this was after months of pushing for clear rules and guidelines for crypto businesses. Rather than respond positively to the crypto exchange’s request, the SEC stated that it was yet to decide what action needed to be taken on the rulemaking petition. 

The Coinbase vs. SEC Legal Showdown

Then in June, right after chasing leading digital assets service provider Binance, the SEC sued Coinbase.

In the lawsuit, Coinbase was accused of operating as an unregistered broker, exchange, and clearing agency, raising concerns about potential violations of financial regulations. About 13 tokens including Solana (SOL), Cardano (ADA), and Polygon (MATIC) were listed as unregistered securities in the lawsuit.

With Judge Failla’s latest statement, Coinbase may well be on its way to receiving a favorable response from the securities regulator. It was earlier predicted that a ruling in favor of the exchange would provide a roadmap for crypto enterprises to navigate U.S. securities laws more confidently.

Meanwhile, the judge’s statement was on the premise of Coinbase’s motion to dismiss the SEC case. The crypto exchange cited that crypto assets are not under the jurisdiction of the SEC like stocks and bonds, therefore, the regulator should cease interfering.