(Reuters) -A federal judge in Manhattan on Wednesday said the U.S. securities regulator’s lawsuit against Coinbase can move forward, but dismissed one claim the agency made against the largest U.S. cryptocurrency exchange. The decision partly granted Coinbase’s motion to dismiss the Securities and Exchange Commission’s lawsuit alleging the company is flouting its rules.
The SEC and Coinbase did not immediately respond to a request for comment. It is a partial win for Coinbase in what could be a lengthy and expensive court battle.
The SEC sued Coinbase in June, saying the firm facilitated trading of at least 13 crypto tokens that should have been registered as securities and was operating illegally as a national securities exchange, broker and clearing agency without registering with the regulator.
Judge Katherine Polk Failla allowed most of the lawsuit to proceed, but dismissed the SEC’s claim that Coinbase acted as an unregistered broker via its wallet application.
The case against the world’s largest publicly traded cryptocurrency exchange is a high-water mark in the regulator’s campaign to apply U.S. securities law to the digital asset companies.
To do so, the SEC has largely relied on a U.S. Supreme Court ruling setting out a test for when an investment constitutes a security. A key piece is whether returns “come solely from the efforts of others.”
Coinbase has argued that crypto assets, unlike stocks and bonds, do not meet that definition, a position held by the vast majority of the crypto industry.
In the few cases that have gone to court, judges have mostly agreed with the SEC that the crypto assets at issue were securities, which unlike assets such as commodities are strictly regulated, must be registered with the SEC by their issuer and require detailed disclosures to inform investors of potential risks.
(Reporting by Hannah Lang in Washington and Jody Godoy in New YorkEditing by Matthew Lewis and Nick Zieminski)
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