US securities regulator to drop lawsuit against Coinbase, exchange says

• Move would end years-long legal battle
• SEC under Trump has quickly overhauled approach to crypto
• Federal judge has paused SEC lawsuit against Binance

Feb 21 (Reuters) - Coinbase COIN.O said on Friday the U.S. securities regulator planned to withdraw its lawsuit against the crypto exchange, ending a contentious years-long legal battle once considered existential for the trading platform and the broader sector.

The Securities and Exchange Commission has moved quickly to overhaul the agency's approach to policing the crypto sector under Republican leadership since President Donald Trump took office. The agency has established a dedicated task force and rescinded crypto-related accounting guidance.

The decision to end its litigation against Coinbase, one of a number of lawsuits brought under the SEC's prior chair, would be the most dramatic move yet under the acting Republican leadership. The regulator has also created a task force to work with the industry to create a pathway to regulation and reorganized its crypto enforcement unit, reassigning key names in crypto litigation to other areas.

"The war against crypto, at least as it applies to Coinbase, is over," Coinbase Chief Legal Officer Paul Grewal said in an interview.

The SEC sued both Coinbase, the largest U.S. crypto exchange, and rival trading platform Binance in 2023. A court has separately paused the agency's lawsuit against the other firm after a request from the SEC and Binance, citing implications of the new task force.

The SEC alleged Coinbase flouted its rules and facilitated trading in at least 13 crypto tokens that it said should have been registered as securities.

The lawsuit also targeted Coinbase's "staking" program, in which it pools assets to verify activity on blockchain networks and takes commissions, in exchange for "rewards" to customers. The SEC said that program should have been registered with the agency.

Coinbase has argued that crypto assets, unlike stocks and bonds, do not meet the definition of an investment contract, a position held by the vast majority of the crypto industry. As outlined in a U.S. Supreme Court case, a key test for whether an investment product is a security is whether people are investing in a common enterprise with the expectation of profit.

Acting SEC Chair Mark Uyeda and fellow Republican Commissioner Hester Peirce have taken issue with former Chair Gary Gensler's approach to litigation, arguing instead for new crypto-specific rules.

"We have a very positive, productive relationship with this new SEC and working lock step with them, arm in arm, to get this addressed," Grewal said.