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Move would end years-long legal battle

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SEC under Trump has quickly overhauled approach to crypto

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Federal judge has paused SEC lawsuit against Binance

(Adds paragraphs 5-7, 14-15, 18-21)

By Hannah Lang and Chris Prentice

Feb 21 (Reuters) - Coinbase 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 its 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The agency has established a dedicated task force and rescinded

key crypto-related accounting guidance.

The SEC, which declined to comment, has been expected to

review pending court cases and walk back its litigation even

before overhauling its regulations, Reuters previously reported.

Still, the decision to recommend dismissing its lawsuit 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 war against crypto, at least as it applies to Coinbase,

is over," Coinbase Chief Legal Officer Paul Grewal said in an

interview.

Shares in Coinbase opened up more than 3.5% as investors

cheered the news.

Republican officials at the SEC have immediately begun to

overhaul the agency's crypto policies, even before the arrival

of Paul Atkins, Trump's crypto-friendly pick for SEC chair.

Revisiting cases against crypto firms - especially those

which violated the SEC's rules but were not alleged to have

defrauded investors - has been broadly anticipated, though many

legal experts told Reuters they expected the SEC to seek

settlements and any mass effort to dismiss all pending matters

would be seen as unprecedented.

The SEC sued both Coinbase, the largest U.S. crypto

exchange, and rival trading platforms 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 agency also sued crypto exchange Kraken in 2023.

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.

Better Markets, which advocates for stricter government

oversight of the financial sector, said the SEC dropping its

lawsuit against Coinbase would be "a historic mistake."

"The SEC used to enforce the law without fear or favor

but is now favoring the crypto industry and fearing billionaire

crypto kingpins who are publicly belittling the agency," said

Dennis Kelleher, president and CEO of the group, in a statement.

'ARM IN ARM'

Gary Gensler, the former Democratic agency chair, had made

fighting misconduct in a sector he termed the "wild west" a

priority for the SEC, targeting not only fraudsters but also the

large firms that facilitate trading such as Coinbase. The

regulator boosted the size of the crypto enforcement unit as

part of that effort.

The SEC has now scaled back that crypto enforcement

effort, reassigning lawyers and earlier this week renaming the

unit to focus on "cyber and emerging technologies".

Acting SEC Chair Mark Uyeda and fellow Republican

Commissioner Hester Peirce have taken issue with Gensler's

approach to litigation, arguing instead for new crypto-specific

rules.

"We have a very positive, productive relationship with this

new SEC and are working (in) lock step with them, arm in arm, to

get this addressed," Grewal said.

Peirce, dubbed "crypto mom" by many in the sector, is

leading the agency's new efforts to overhaul its policy. The new

task force has held at least 8 meetings to discuss changes,

according to public logs available on the SEC's website.

In his first week in office, Trump ordered the creation of a

cryptocurrency working group tasked with proposing new digital

asset regulations and exploring the creation of a national

cryptocurrency stockpile, making good on his promise to quickly

overhaul U.S. crypto policy.

Trump on the campaign trail pledged to be a "crypto

president" and courted cash from the industry by promising to

promote the adoption of digital assets.

In an executive order, Trump also ordered that banking

services for crypto companies be protected, alluding to industry

claims that U.S. regulators have directed lenders to cut crypto

companies off from banking services --

something regulators deny

.