NY judge grants Coinbase's move for an interlocutory appeal, putting SEC's case on pause

A New York district court judge has granted Coinbase's move to appeal, putting the U.S. Securities and Exchange Commission's lawsuit against the exchange on pause.

U.S. District Judge for the Southern District of New York, Judge Katherine Polk Failla, granted Coinbase's move for an interlocutory appeal in an opinion and order filed on Tuesday. Interlocutory appeals, which are appeals made before a judge makes a final decision, are rarely granted. The case will next go to the Second Circuit Court of Appeals where that court will likely take the case on, a person familiar said. 

The SEC sued Coinbase in 2023 for allegedly operating as an unregistered exchange, broker, and clearing agency. The regulator also took issue with Coinbase's staking and wallet services. Judge Failla later sided with Coinbase on the wallet part and dismissed the SEC's claim. 

Coinbase filed its appeal in April, claiming substantial grounds for differences of opinion. SEC Commissioners, lawmakers and courts themselves have been at odds with how the Howey Test applies to transactions, Coinbase's lawyers said in the 27-page appeal. The Howey Test is based on a 1946 U.S. Supreme Court case frequently cited by the SEC to determine if an asset qualifies as an investment contract and, therefore, a security.

"As explained in the remainder of this Opinion, the Court certifies the Order for interlocutory appeal under Section 1292(b) because it presents a controlling question of law regarding the reach and application of Howey to crypto-assets, about which there is substantial ground for difference of opinion, and the resolution of which would advance the ultimate termination of the SEC’s enforcement action," Judge Failla said in her order on Tuesday.

Judge Failla also said that there is "substantial ground for difference of opinion" because of "conflicting authority" on how Howey applies to crypto and said that "the application of Howey to crypto-assets raises a difficult issue of first impression for the Second Circuit."

Judge Failla also said that "conflicting decision" require the Second Circuit's insight.

"Although the Court does not appreciate, and will not co-sign, Coinbase’s efforts to cast aspersions on the SEC’s approach to crypto-assets … the fact remains that these conflicting decisions on an important legal issue necessitate the Second Circuit’s guidance," Failla said.

Coinbase Chief Policy Officer Faryar Shirzad called Judge Failla's order a "blow" to the SEC. 

"Another blow against the current SEC's leadership's effort to sow continued uncertainty and confusion," Shirzad said in a post on X. "Gratitude to Judge Failla for allowing the interlocutory appeal."

The SEC declined to comment.