SEC’s “scorched-earth” lawsuit against Coinbase to be dropped, company says

On Friday, a Coinbase executive declared the “war against crypto” over—“at least as it applies to Coinbase.”

According to Coinbase Chief Legal Officer Paul Grewal, the US Securities and Exchange Commission (SEC) plans to drop its lawsuit against the largest US cryptocurrency exchange as the agency shifts to embrace Donald Trump’s new approach to regulating cryptocurrency in the US.

The SEC sued Coinbase in 2023, accusing Coinbase of “operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency” and “failing to register the offer and sale of its crypto asset staking-as-a-service program.”

“Since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities,” the SEC alleged.

At that time, the SEC claimed that Coinbase’s supposedly dodgy operations were depriving investors of “significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others.” The litigation was intended to protect Coinbase customers, the SEC said, by holding Coinbase to the same standards as any service acting as an exchange, broker, or clearing agency.

Former SEC Chair Gary Gensler, long considered an adversary in the crypto industry, had warned that Coinbase “deliberately” flouted rules to cheat investors out of protections for financial gain. That left customers exposed to risks, Gensler claimed, and allowed for insider trading that resulted in a settlement.

“You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great,” Gensler said.

A loss could have ruined not just Coinbase, the exchange claimed in a dramatic court filing last year, but the entire crypto industry. As Coinbase saw it, the US was forcing crypto companies into an impossible Catch-22 by allegedly refusing to clarify rulemaking while threatening “scorched-earth litigation” against any firm not in compliance. Now Coinbase feels justified for pushing back on the rules that Gensler tried to enforce, Grewal said, accusing the prior SEC regime of “usurping the power of Congress” and acting “above the law.”

“This pattern of conduct is a purposeful effort to destroy an industry by demanding the impossible and prosecuting companies that fail to achieve it,” Coinbase claimed in the court filing.

So far, the SEC has made no official announcement confirming that the lawsuit will be dropped, as Grewal claims. The agency swiftly declined Ars’ request for comment. But Grewal’s blog suggested that an agreement has been made in principle, and all that’s needed now is the sign-off of SEC Commissioner Hester Peirce, and Coinbase clearly thinks that’s a given.

“Case dismissed,” Grewal posted on X (formerly Twitter). “There will be no settlement or compromise—a wrong will simply be made right.”

In his blog, Grewal said that Coinbase spent millions fighting the litigation and that moving forward will push Congress to “pass legislation which provides the long-term certainty needed for the US to lead in this industry.”

“This case should never have been filed in the first place,” Grewal’s blog said. “This is a victory not just for Coinbase, but for our customers, the United States, and individual freedom.”