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A federal judge in Nevada has shut down a last-ditch effort by Coinbase Financial Markets Inc. breaking down his products based trading activityclearing the way for the case to proceed in state court.
On a February 7 orderUS District Judge Cristina D. Silva denied Coinbase’s request for a temporary restraining order and a preliminary injunction. He also dismissed the company’s federal lawsuit without prejudice, ending the case and returning the dispute to where it began.
That leaves Coinbase facing an active civil enforcement action in Carson City, brought by the Nevada Gaming Control Board. State regulators alleged that the company offered illegal gambling products in Nevada without the licenses required under state law.
The defendants contend the contracts are ‘paradigmatic swaps.’ They contend that Coinbase’s offerings meet the NRS definitions of ‘gaming,’ ‘game,’ ‘sports pool,’ and ‘betting.’
Coinbase v. Aaron D. Ford, et al
At issue are event contracts tied to the results of sporting events and other real-world events. Nevada regulators say those contracts operate like sports betting and fall under the Nevada Gaming Control Act. Coinbase argues that they are financial sources regulated at the federal level, not gambling, and therefore outside state authority.
Judge Silva never reached that central disagreement. Instead, he pointed out whether a federal court could intervene at all while the Nevada enforcement case is already underway.
Why did the federal court step aside?
the state case filed with the Nevada Gaming Control Board earlier this month as a civil enforcement action against Coinbase Financial Markets Inc. Regulators said the company offered event-based contracts to Nevada residents who did not hold a gaming license and allowed people under 21 to participate.
“The Board takes seriously its obligation to operate a thriving gaming industry and protect the citizens of Nevada. The action taken yesterday reinforces this obligation,” said Chairman Mike Dreitzer.
The board sought an injunction to stop the offerings in Nevada, along with civil penalties and other remedies allowed under state law. In its filings, the board described the contracts as illegal betting on sports events and other consequences.
A state court judge granted an ex parte temporary restraining order on February 5, immediately prohibiting Coinbase from continuing to offer contracts in Nevada. Coinbase rushed to federal court the other day, seeking emergency relief to block the state from enforcing its gambling laws.
Coinbase told a federal court that its contracts are “paradigmatic swaps” that are exclusively governed by federal commodities law and overseen by the Commodity Futures Trading Commission. On that basis, the company argued that Nevada did not have the authority to regulate or close the products.
Judge Silva said his court was required to stay out of the dispute under the Young doctrine, which generally prevents federal courts from interfering in ongoing state proceedings. He found that all three elements for abstention are present: the state case is ongoing, it involves important state interests, and Coinbase has the opportunity to raise its federal arguments in state court.
Regulating gambling, he wrote, was a primary function of the state. He also pointed to the fact that Nevada itself initiated the enforcement action, undermining Coinbase’s claim that the state lacked a legitimate interest. The judge rejected Coinbase’s argument that “extraordinary circumstances” justified federal intervention, saying the state’s time-consuming case did not meet that standard.
Judge Silva added that even if the abstention did not apply, the Anti-Injunction Act would independently bar the relief sought by Coinbase. With no exceptions available, he denied the emergency motion, dismissed the complaint, and ordered the case closed.
Currently, Coinbase’s fight over its event-based contracts is fully underway in Nevada state court, where the enforcement case and temporary restraining order remain in effect.
Featured image:Coinbase / Canva
The post A federal judge has shut down Coinbase’s bid to block Nevada gambling enforcement first appeared in ReadWrite.
