A decision by a federal judge has allowed the lawsuit brought by the U.S. Securities and Exchange Commission (SEC) against Coinbase to proceed, asserting that the cryptocurrency exchange might be operating as an unregistered broker, exchange, and clearinghouse. Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York denied the majority of Coinbase’s motion to dismiss the SEC’s case, stating the agency presented a “plausible” argument. A deadline of April 19 was set for both parties to submit a proposed schedule for the case.

The lawsuit against Coinbase, filed by the SEC concurrently with a similar action against Binance, claims Coinbase violated federal securities laws by offering trading and staking services to the public and operating Coinbase Wallet without proper registration.

Although Judge Failla acknowledged the SEC’s claim that certain tokens on the Coinbase Wallet might be considered “investment contracts,” she did not find Coinbase to be acting as a brokerage, leading to the dismissal of that part of the lawsuit.

The judge allowed the remainder of the lawsuit to advance, rejecting Coinbase’s arguments that the SEC was overstepping its bounds under the Major Questions Doctrine and the Administrative Procedures Act. Failla highlighted that Coinbase had been sufficiently forewarned of the SEC’s focus on the crypto industry, referencing the DAO Report and previous legal actions.

Failla elaborated on the nature of token purchases on Coinbase, emphasizing that customers are investing in the token’s digital ecosystem, which has its value inherently tied to the growth of that ecosystem. She pointed out that initial coin offerings are designed to hold value in secondary markets and that issuers often promote ongoing development and support for their tokens post-launch.

The outcome of this case could significantly influence the operational framework for the cryptocurrency industry in the U.S., potentially aligning exchanges with national securities exchanges in terms of restrictions and regulatory requirements. This shift could affect the availability of tokens to retail investors and impose new disclosure obligations on trading platforms.