Court rejects SEC claim that Coinbase Wallet is unregistered broker

The SEC’s claim that Coinbase Wallet is an unregistered broker has been rejected.

The U.S. District Court for the Southern District of New York rejected the SEC’s claim that Coinbase Wallet is an unregistered broker. In addition, Judge Katherine Polk Failla denied the application to close the staking program of the Coinbase crypto exchange.

The judge ruled that Coinbase Inc. engaged in a sale and offer of securities under U.S. law. The SEC previously filed a lawsuit against the company, alleging the opposite. The judge also said that under federal securities laws, Coinbase operates as an exchange, broker, and clearing agency. Through its staking program, it engages in the unregistered offer and sale of securities.

The decision partially granted Coinbase’s motion to dismiss the SEC’s lawsuit alleging the company violated its rules.

“However, 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.”

Court filing

On June 6, 2023, the SEC filed a lawsuit against Coinbase. According to the regulator, the platform operated as an unregistered broker. The SEC said Coinbase illegally combines three functions, broker, exchange, and clearing agency, which are typically separated in traditional markets. The regulator also targeted the Coinbase Earn staking program.

The SEC also claimed that the lack of registration deprived Coinbase customers of essential protections, including regulatory reviews, record-keeping requirements, and conflict-of-interest prevention.