State Regulators Rally Against Coinbase in Securities Battle

Uncover the pivotal role of U.S. State Regulators in Coinbase’s ongoing legal skirmish over unregistered securities.

Regulators arguing over laws.
Created by Kornelija Poderskytė from DailyCoin
  • The intervention of U.S. State Regulators in Coinbase’s Unregistered Securities case.
  • Regulators boost the SEC’s legal arguments against Coinbase.
  • Their role has immense implications for the broader crypto market.

In a decisive turn of events, U.S. State Regulators have intervened in the ongoing legal fight between Coinbase and federal authorities over the allegations of unregistered securities. This case unfolds against increasing scrutiny of cryptocurrency exchanges and their adherence to existing securities laws. 

State Regulators’ Stand Against Coinbase Unregistered Securities

On Tuesday, October 10, the discord between Coinbase and the federal authorities reached a new high as U.S. state authorities and legal experts joined the fray against Coinbase, claiming the exchange unlawfully operated an unregistered exchange​.  

The North American Securities Administrators Association (NASAA), representing state and provincial securities regulators across North America, filed an amicus brief backing the Securities and Exchange Commission (SEC) in its lawsuit against Coinbase​. 

Amicus briefs, which are legal documents filed by non-litigant parties to offer insight or arguments, have been submitted by various entities supporting the SEC’s stance. These briefs argue that cryptocurrencies do not warrant a unique classification and fall under existing securities laws. 

The NASAA stated that the SEC’s theory is consistent with its long-standing public position and well within established law’s bounds, opposing any special treatment for digital assets​. 

Notably, states like Alabama, California, and New Jersey have initiated enforcement actions against Coinbase. In particular, these targeted its staking program, which they argue constitutes an unregistered security​​. This multi-state action reflects a broader tension between the crypto industry and regulators.

What Are the Stakes of The SEC’s Lawsuit Against Coinbase

The SEC’s lawsuit centers around the allegations that Coinbase operated as an unregistered securities exchange. The exchange also allegedly failed to register the offer and sale of its crypto asset staking-as-a-service program.

This lawsuit is seen as potentially existential for Coinbase and might set a precedent in the broader crypto industry concerning securities regulations. If the SEC gets its way, exchanges must dramatically alter their business model. This includes potentially not offering any crypto token the SEC considers a security.   

The lawsuit against Coinbase isn’t an isolated incident but part of a larger regulatory tightening around crypto exchanges. Earlier this year, the SEC took similar actions against Binance. In these lawsuits, the agency also argued that tokens, including Solana, Cardano, and Polygon, are securities. 

On the Flipside

  • Coinbase has staunchly opposed the allegations, asserting that the SEC is overstepping its bounds. The exchange argues that cryptocurrencies lie outside the SEC’s jurisdiction.
  • Coinbase CEO Brian Armstrong also argued that the SEC’s approach to crypto is stifling innovation and driving blockchain developers overseas. 

Why This Matters

For crypto traders, the outcome of this lawsuit could signal a turning point. A ruling against Coinbase could catalyze a domino effect, prompting stricter regulatory oversight on other crypto exchanges. 

Read more about Coinbase CEO’s case against the SEC:
Coinbase CEO Calls for Gary Gensler’s Removal as SEC Chair

Read more about the UK’s proposed regulations for NFTs:
UK Committee Urges for NFT Copyright Rules: What’s Next?

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.