In a key development for Coinbase, a federal judge has granted its request for an interlocutory appeal in its legal battle with the U.S. Securities and Exchange Commission (SEC). The decision temporarily halts proceedings in the case while the appeals court evaluates critical legal questions about securities law as applied to cryptocurrency transactions.
Judge Failla Allows Appeal Over Securities Definition
On January 7, Judge Katherine Failla of the U.S. District Court for the Southern District of New York approved Coinbase’s appeal of her earlier decision to deny the company’s motion for judgment. The court order stays all case proceedings until the Second Circuit Court of Appeals reviews the interlocutory appeal.
The crux of the appeal centers on differing interpretations of whether certain cryptocurrency transactions qualify as investment contracts under the SEC’s jurisdiction. The debate hinges on the application of the Howey test, a legal framework used to determine what constitutes a security.
Judge Failla acknowledged the potential for her decision to be overturned, citing conflicting rulings in similar SEC cases against Terraform Labs and Ripple Labs. For example, in the Ripple case, a federal judge ruled that XRP tokens were not securities when sold on exchanges, creating a legal precedent that challenges the SEC’s claims.
The Broader Crypto Regulatory Landscape
The SEC first brought its case against Coinbase in June 2023, alleging that the exchange operated as an unregistered securities exchange, broker, and clearing agency since 2019. Coinbase and its allies in the crypto industry have consistently criticized the SEC, accusing it of overreach and unclear guidance on digital assets.
In her statement, Judge Failla refrained from supporting Coinbase’s criticism of the SEC’s regulatory approach but highlighted the need for clarity. “Conflicting decisions on an important legal issue necessitate the Second Circuit’s guidance,” she wrote.
Coinbase and Industry Efforts Against Regulatory Overreach
Coinbase’s Chief Legal Officer, Paul Grewal, expressed gratitude for the court’s decision, saying the company “appreciates the Court’s careful consideration” in a January 7 post on X (formerly Twitter).
The company has also taken a proactive stance against what many in the crypto industry call Operation Chokepoint 2.0, a purported campaign to “debank” crypto firms. Coinbase has backed efforts to force government agencies to disclose documents related to these allegations.
Coinbase’s Political Involvement in the 2024 Elections
Beyond the courtroom, Coinbase has been one of the leading forces in the crypto industry’s political efforts. Along with Ripple, Coinbase contributed over $90 million to the political action committee Fairshake, which supported pro-crypto candidates in the 2024 U.S. congressional elections.
Following Republican Donald Trump’s victory in the presidential race, Grewal called on the SEC to adopt a new approach to digital assets. SEC Chair Gary Gensler has announced plans to step down on January 20, with Commissioner Jaime Lizárraga also expected to leave before Trump’s inauguration, potentially leaving the SEC understaffed heading into 2025.
