A federal judge in Nevada has rejected an emergency request by Coinbase for it to be allowed to continue offering its “event contract” products in Nevada until the Nevada Gaming Control Board’s lawsuit against the exchange is resolved. Coinbase was sued by the Nevada gambling regulator last week over products that the regulator alleged allow users to wager on the outcome of sporting events without a gaming license. As part of that suit, the Board was granted a temporary restraining order against Coinbase, ordering the exchange to stop offering the services while the suit was ongoing. Coinbase filed an emergency request in federal court seeking permission to continue offering its products until the Nevada regulator’s case is resolved, arguing that the products in question are within the exclusive federal jurisdiction of the Commodity Futures Trading Commission (CFTC).
Calling Coinbase’s arguments for maintaining the status quo “unpersuasive,” United States District Judge Cristina Silva said that the request could not be granted due to the Younger abstention doctrine, which “forbids federal courts from staying or enjoining pending state court proceedings.” Silva also said that even if the Younger doctrine did not apply, the Anti-Injunction Act expressly prohibits federal courts from staying state court actions except in limited circumstances, which Silva found were not met. The practical result of this is that until the Nevada Gaming Control Board’s case against Coinbase is resolved, the exchange is prohibited from offering its “event contract” products in Nevada. The “event contracts” at the heart of Coinbase’s dispute with Nevada allow users to bet on a variety of real-world events, including sports.
Users pay a fee to ‘buy’ the contract, which pays a fixed amount if certain conditions—such as a team winning a given match—are met. According to the Board, allowing Nevada residents to purchase event contracts constitutes a regulated activity under Nevada State law without the applicable license. Therefore, the Board is seeking a declaration from the state court to that effect. If successful, the Board will presumably take enforcement action against Coinbase under its own powers. The suit matters to Coinbase because the company has been explicit about its intentions to become the “everything exchange.” If these ambitions are found to have put Coinbase on the wrong side of state gaming laws, it will likely face similar actions from other state gaming regulators.
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