A federal judge in Nevada has shut down Coinbase Financial Markets Inc.’s last-ditch effort to stop state gambling regulators from cracking down on its event-based trading products, clearing the way for the case to continue in state court.
In a February 7 order, U.S. District Judge Cristina D. Silva denied Coinbase’s request for a temporary restraining order and a preliminary injunction. She also dismissed the company’s federal lawsuit without prejudice, ending the case and sending the dispute back where it started.
That leaves Coinbase facing an active civil enforcement action in Carson City, brought by the Nevada Gaming Control Board. State regulators allege the company has been offering illegal gambling products in Nevada without the licenses required under state law.
Defendants dispute the contracts are ‘paradigmatic swaps.’ They contend Coinbase’s offerings meet the NRS definitions of ‘gaming,’ ‘game,’ ‘sports pool,’ and ‘wager.’
Coinbase vs Aaron D. Ford, et al
At issue are event contracts tied to the outcomes of sporting events and other real-world occurrences. Nevada regulators say those contracts function like sports betting and fall squarely under the Nevada Gaming Control Act. Coinbase argues they are financial derivatives regulated at the federal level, not gambling, and therefore outside the state’s authority.
Judge Silva never reached that central disagreement. Instead, she focused on whether a federal court could intervene at all while Nevada’s enforcement case is already underway.
Why the federal court stepped aside
The state case was filed by the Nevada Gaming Control Board earlier this month as a civil enforcement action against Coinbase Financial Markets Inc. Regulators allege the company offered event-based contracts to Nevada residents without holding a gaming license and allowed people under 21 to participate.
“The Board takes seriously its obligation to operate a thriving gaming industry and to protect Nevada citizens. The action taken yesterday reinforces this obligation,” said Chairman Mike Dreitzer.
The board is seeking an injunction to stop the offerings in Nevada, along with civil penalties and other remedies allowed under state law. In its filings, the board describes the contracts as illegal wagering on sporting events and other outcomes.
A state court judge granted an ex parte temporary restraining order on February 5, immediately barring Coinbase from continuing to offer the contracts in Nevada. Coinbase had rushed to federal court the day before, asking for emergency relief to block the state from enforcing its gambling laws.
Coinbase told the federal court that its contracts are “paradigmatic swaps” governed exclusively by federal commodities law and overseen by the Commodity Futures Trading Commission. On that basis, the company argued Nevada had no authority to regulate or shut down the products.
Judge Silva said her court was required to stay out of the dispute under the Younger doctrine, which generally prevents federal courts from interfering with ongoing state proceedings. She found all three elements for abstention were 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, she wrote, is a core state function. She 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 frustration with the timing of the state’s lawsuit did not meet that standard.
Judge Silva added that even if abstention did not apply, the Anti-Injunction Act would independently bar the relief Coinbase sought. With no exceptions available, she denied the emergency motion, dismissed the complaint, and ordered the case closed.
For now, Coinbase’s fight over its event-based contracts moves entirely to Nevada state court, where the enforcement case and temporary restraining order remain in effect.
Featured image: Coinbase / Canva
