Judge let most of SEC’s Coinbase case proceed but dismissed Wallet claim

Most of the SEC case survived

On March 27, 2024, U.S. District Judge Katherine Polk Failla denied most of Coinbase’s request to end the Securities and Exchange Commission’s civil case at the pleading stage. The 84-page opinion allowed the agency’s claims involving Coinbase’s trading platform, Prime service and staking program to proceed, while dismissing its allegation that Coinbase acted as an unregistered broker by making Coinbase Wallet available.

The split ruling mattered because it kept a major test of U.S. securities law alive against the largest U.S. cryptocurrency exchange. It also drew a line—preliminary and specific to the complaint—between Coinbase’s centralized intermediation and the functions alleged for its self-custodial wallet.

The order was not a finding that Coinbase had violated securities law, that every crypto asset was a security, or that the SEC would ultimately prevail. At this stage, the court accepted well-pleaded factual allegations as true and asked whether they stated legally plausible claims.

What the court allowed to proceed

The SEC filed the action on June 6, 2023. It alleged that Coinbase operated an unregistered securities exchange, broker and clearing agency, that Coinbase Global had control-person liability, and that Coinbase’s staking program was an unregistered securities offering. Coinbase answered and sought judgment on the pleadings.

Failla held that the complaint plausibly alleged that transactions involving at least some of the identified crypto assets could be investment contracts under the Supreme Court’s Howey framework. The opinion emphasized that the legal inquiry concerned transactions and their economic reality, rather than treating a token, standing alone, as necessarily a security.

That conclusion was sufficient to preserve the SEC’s exchange, broker and clearing-agency counts concerning the Coinbase Platform and Prime. The court also rejected Coinbase’s arguments that the major-questions doctrine, due process and the Administrative Procedure Act barred the enforcement action at the pleading stage.

The staking count survived separately. Based on the complaint’s allegations and Coinbase’s program descriptions, the court found it plausible that customers invested assets in a common enterprise and reasonably expected profits from Coinbase’s managerial and technical efforts. The opinion referred to the five stakeable crypto assets covered by the SEC’s claim. That was a ruling on pleading sufficiency, not a final classification or liability judgment.

Why Wallet was different

Coinbase prevailed on the SEC’s Wallet theory. The complaint described Wallet as a separate, self-custodial application through which users controlled their private keys and could reach third-party decentralized trading platforms. Coinbase did not maintain custody of assets traded through that product.

Failla concluded that merely making Wallet available and facilitating access to transactions did not plausibly show that Coinbase was acting as a broker under Section 15(a) of the Exchange Act. The court therefore dismissed the Wallet claim even though it found the SEC had adequately alleged that some transactions accessible through Wallet involved investment contracts.

The distinction was institutionally important for wallet developers and decentralized-finance interfaces, but its limits were equally important. The order did not grant a general exemption for self-custody software, decide the status of every wallet feature, or bind other courts confronting different facts.

What remained unresolved on March 27

The immediate verified result was procedural: most counts moved forward, one product-specific broker claim was dismissed, and the parties were directed to submit a proposed case-management plan by April 19, 2024. Remedies sought in the SEC’s complaint—including injunctions, disgorgement and civil penalties—had not been awarded.

Coinbase’s chief legal officer, Paul Grewal, said on March 27 that the company was prepared for the case to continue and welcomed the Wallet dismissal. The SEC said the ruling supported using established securities-law tests for crypto transactions. Those were the parties’ contemporaneous interpretations, not judicial findings.

No asset-price, trading-volume or equity-return claim is necessary to establish the ruling’s significance. The event-day record supported a narrower conclusion: the SEC had cleared the pleading-stage threshold for its central registration and staking theories, while Coinbase had defeated the agency’s attempt to characterize the alleged Wallet conduct as brokerage.