• Judge Katherine Polk Failla granted Coinbase’s request for an interlocutory appeal.
• The appeal will address whether an “investment contract” requires a formal agreement under U.S. securities law.
• The decision could have significant implications for the regulatory treatment of digital assets and the ongoing Ripple case.

In a significant ruling, Judge Katherine Polk Failla approved Coinbase’s request for an interlocutory appeal, pausing the Securities and Exchange Commission’s (SEC) lawsuit against the cryptocurrency exchange.

The ruling, issued by the U.S. District Court for the Southern District of New York, pauses ongoing litigation, allowing Coinbase to challenge key aspects of the SEC’s allegations. This appeal will focus on whether an ‘investment contract’ under U.S. securities law requires a formal agreement—an issue critical to the cryptocurrency industry.

Court Ruling and Appeal Details

The U.S. District Court for the Southern District of New York issued the decision on January 7, 2025, halting the SEC’s litigation against Coinbase. This rare approval of an interlocutory appeal allows Coinbase to seek clarity from the Second Circuit Court of Appeals on whether an investment contract requires a formal agreement between parties.

Pro-XRP lawyer Jeremy Hogan noted that such appeals are uncommon and suggest the court sees potential merit in the argument. He also highlighted that the same issue is pivotal in the Ripple case.

Coinbase Celebrates Legal Milestone

Paul Grewal, Coinbase’s Chief Legal Officer, celebrated the ruling on X. He remarked, “Over the strenuous objection of the SEC, Judge Failla has granted our motion for leave to pursue an interlocutory appeal”

The SEC opposed the motion, arguing that the case should continue in the district court. However, the judge’s decision suspends proceedings until the appellate court resolves the matter.

This case holds industry-wide implications, as it may redefine how securities laws are applied to cryptocurrencies. Coinbase and other stakeholders argue that existing regulations are outdated, while the SEC maintains that many tokens meet the criteria for securities under the Howey Test.

Ripple Case Parallels

The appellate court’s decision could also affect the Ripple Labs case, where similar debates about investment contracts are ongoing. A favorable ruling for Coinbase could provide much-needed clarity on cryptocurrency regulations and their application to exchanges.
In July 2023, Judge Analisa Torres ruled that Ripple’s programmatic XRP sales were not securities. However, she denied the SEC’s request for an interlocutory appeal, delaying it until August 2024. The SEC’s appeal remains in progress.