The SEC vs. Coinbase Saga Continues (2024)

What do The Simpsons, Saturday Night Live, and the SEC vs. Coinbase case all have in common?

(Yes, they all start with “S” – very astute of you. But that's not the one I'm getting at.)

Answer: they will all go on forever.

At least, that's how we feel hearing that Coinbase lost its motion to dismiss the SEC’s case against them.

U.S. District Court Judge Katherine Polk Failla recently ruled that the SEC case against Coinbase can proceed.

The decision came amidst allegations that Coinbase had been operating as an unregistered broker, exchange, and clearinghouse. Coinbase was able to ward off, in part, those allegations by getting the charges against Coinbase Wallet dismissed.

In her decision, Judge Failla throws cold water on several of Coinbase’s main arguments by claiming the following:

1. The SEC is seen as rightfully exercising its authority granted by Congress.
2. Coinbase's argument regarding the violation of their due process rights by the SEC not providing "fair notice" was countered by evidence of written guidance, litigation, and other actions by the SEC.
3. The necessity for a formal contract for an investment contract to exist under the Howey test is dismissed.
4. No distinction is made between buying tokens directly from issuers or in secondary market transactions.
5. The judge leans towards the SEC's "ecosystem" argument on what makes certain crypto assets securities, rejecting Coinbase's opposing logic.

Coinbase Chief Legal Officer (the busiest CLO on the planet), Paul Grewal, said they were prepared for the outcome and “look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation.”

Crypto lawyer Jake Chervinsky, offering his insights in a Twitter thread, highlights the mixed outcome:

"The court just decided Coinbase's motion for judgment on the pleadings. Overall, SEC wins.

There are some positives: it's great for DeFi that Wallet is not a broker, and there's good language on other issues like Howey's 'investment of money' prong.

But the court sided with the SEC (incorrectly, imo) on several key issues.

For example, the court ignores the "contract" in "investment contract" and says Howey applies to purely secondary market transactions. It also adopts the SEC's "ecosystem" theory of common enterprise.”

So, what does all this mean for the crypto industry?

When one court case closes (SBF’s, see below), another one opens.

We’re in for a long, drawn-out battle between Coinbase and the SEC. Just wait until the SEC hears about the Memecoin trading happening on Base. 😬

Spotlight 🔦 - The on-chain finance and accounting event of the YEAR

If you’re unfamiliar - and we don’t know how you could be if you’re reading this newsletter - theEnterprise Digital Asset Summit(aka EDAS) is a gathering of the brightest minds, the boldest innovators, and the most passionate thought leaders for a deep dive into the world of enterprise finance for digital assets.

It istheon-chain finance and accounting event of the year...and this summer, we're taking the show to Nashville!

Details:

🎙️ The Enterprise Digital Asset Summit

EDAS isn't just another conference – it's a powerhouse of insights and actionable strategies for forward-thinking finance teams (including CFOs, CPAs, tax consultants, and audit pros). Get ready for a jam-packed day filled with:

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But here's the best part – if you act fast, you can snag tickets at early-bird pricing! This limited number of discounted tickets won't last long.

Get your early-bird tickets or learn more at edas.live.

The Water Cooler 🚰

Things (STILL) worth talking about at the office water cooler…if you 1) talk to people, 2) still work in an office, and 3) have a water cooler.

Other Significant Findings

Other Significant Findings are where we add a few more stories of interest hand-picked for YOU, aka a thought leader in crypto accounting and finance. We just don't have room to give these a full write up.

• ‘Nother Day, ‘Nother Charge Against a Crypto Exchange[Full story onCoinDesk] Sometimes it feels like one step forward and three steps back in crypto’s attempt to legitimize itself. U.S. federal prosecutors charged crypto exchange KuCoin and its founders, Chun Gan and Ke Tang, with violating anti-money laundering laws. The indictment alleges KuCoin operated as a money-transmitting business without registering with U.S. government entities or maintaining proper anti-money laundering (AML) programs until 2023. Despite having over 30 million customers, KuCoin did not implement KYC procedures, allowing the exchange to be used for money laundering, including proceeds from illicit activities like sanctions violations and fraud schemes. The Commodity Futures Trading Commission (CFTC) also filed a suit against KuCoin, alleging failure to register as a futures commission merchant and implement KYC programs. KuCoin faces criminal penalties, forfeiture, and regulatory actions.
• SBF Gets 25: [Full story onBlockworks] We have to admit that we feel the same way about SBF as we do every time a new Batman movie pops up: we wouldn’t mind if we could stop talking about this guy for a little while. Unfortunately, there’s still a box office draw for both of them, so we’ve gotta give a little space here for a quick update. Because it’s official: Mr. Sam Bankman-Fried received a 25-year prison sentence for seven counts of fraud and conspiracy by a federal judge in Manhattan. Judge Lewis Kaplan emphasized his "exceptional flexibility with the truth" (which is definitely a trait my five year old self exhibited when he flushed a diaper down the toilet then had to explain why it wouldn’t flush) and lack of remorse as factors in the decision. SBF was ordered to forfeit over $11 billion but won't pay restitutions. The defense plans to appeal within 14 days. He will serve in a low to medium-security prison near San Francisco and will probably also have plenty ofBlue Bell mint chocolate chip ice cream. Civil suits by the SEC and CFTC are stayed until criminal proceedings end.
• Bonus: read this awesome live-tweet coverage of the sentencing from Inner City Presshere.

Extraordinary Items 🤓

Time capsule meme!