Nothing to Hide

Legal Expert Says Court is Unlikely to Dismiss SEC Charges Against Coinbase

Legal Expert Says Court is Unlikely to Dismiss SEC Charges Against Coinbase

In anticipation of the upcoming hearing on Coinbase’s motion to dismiss SEC charges, top legal expert Lisa Bragança doubts the likelihood of an early dismissal.

Crypto community figures eagerly anticipate the SEC v. Coinbase case hearing scheduled for January 17. The hearing will play a pivotal role in determining whether a Manhattan federal judge will grant or deny Coinbase’s motion to dismiss the SEC charges.

Ahead of the upcoming hearing, top financial and legal experts have given different predictions on the outcome of the proceeding. Notably, several legal experts speculate that the court could rule in favor of Coinbase and bring the SEC case to an abrupt end.

Coinbase Unlikely to Get Early Dismissal

However, other legal experts, including former SEC enforcement branch chief Lisa Bragança, do not believe the court will dismiss the regulator’s charges as requested by Coinbase.

The former SEC official pointed out the difficulty on the part of Coinbase to demonstrate that some of its listed crypto-assets do not constitute unregistered securities under the Howey Test.

It bears mentioning that Howey is a longstanding legal test that aids in determining whether an asset constitutes a security.

Notably, the test relies on four essential prongs to reach its conclusion, such as: “(1) investment of money” in a “(2) common enterprise” “(3) with the expectation of profit” “(4) to be derived from the efforts of others.”

Although the Howey test has existed since 1946 – long before the inception of the crypto market – the SEC and its chairman, Gary Gensler, still believe the rule and other existing securities laws apply to the nascent industry.

Notably, the legal ambiguity of existing securities laws poses a major challenge for the court in dismissing the SEC case against Coinbase.

SEC Sues Coinbase

Recall that SEC v. Coinbase case began in June 2023, when the agency charged Coinbase with violating federal laws by failing to register as a national securities exchange, broker, and clearing agency.

The regulator mentioned 13 crypto assets listed on Coinbase as unregistered security, including Solana (SOL) and Cardano (ADA).

In response, Coinbase asked a Manhattan court to dismiss the charges, claiming that it does not support the trading of securities on its platform. The January 17 hearing will determine whether the court will grant Coinbase’s motion to dismiss the SEC charges.

4 Potential Outcomes of Coinbase Dismissal Motion

In the meantime, popular legal expert MetaLawMan took to the X platform to highlight four potential outcomes of the SEC v. Coinbase January 17 hearing.

SEC v. @Coinbase, Update

The hearing on Coinbase’s Motion for Judgment on the Pleadings will be held on Wednesday, Jan 17.

There are four possible outcomes, with potential permutations to each. 👇

— MetaLawMan (@MetaLawMan) January 13, 2024

Firstly, MetaLawMan noted that the judge might deny Coinbase’s motion to dismiss, leading to the continuation of the lawsuit into a protracted discovery phase.

For the second option, the expert said the judge might grant the motion with prejudice. In this scenario, MetaLawMan said the entirety of the case would be dismissed at the district court. However, the regulator can choose to appeal at a higher court.

In the third option, the analyst said in the situation where the judge denies Coinbase’s motion without prejudice, the regulator would be given a chance to amend the complaint and address certain deficiencies highlighted by the court.

Lastly, MetaLawMan said the judge could issue a partial ruling, where certain parts of the SEC’s charges will be dismissed.

For instance, he noted that the “judge [might] grant motion with respect to the claims relating to the 13 cryptos, but deny [the motion] with respect to the staking service.”

In this context, the analyst said the case will move to the discovery phase, focusing only on the staking service.

Notably, MetaLawMan does not expect the judge to issue its judgment on the matter on January 17. However, he speculated that the ruling might come before three months.