Coinbase Crypto Exchange Triumphs Over Lawsuit for Unregistered Securities Sales

The United States District Court of Southern New York has dismissed a class action lawsuit facing Coinbase, Coinbase Global, and the company’s CEO, Brian Armstrong. The lawsuit claimed that some of the tokens sold on the Coinbase exchange were securities and that the exchange had failed to warn its customers about the risks of trading these assets.

Coinbase wins lawsuit for unregistered securities sale

The lawsuit identified 79 tokens traded on the Coinbase exchange that fulfilled the requirement of being securities. The lawsuit cited the Securities Act of 1933 and the Exchange Act of 1934. The plaintiffs noted that each of these tokens passed the Howey test.

Judge Paul Engelmayer addressed the claims of these tokens passing the Howey test and assumed that even if the tokens were securities, the Coinbase exchange was not responsible. “Were this case to reach summary judgment, this contention would emerge as a central battleground,” the Judge said.

The Judge noted that the Coinbase user agreement did not show that the exchange was the “actual seller” of the tokens as the plaintiffs claimed. Moreover, Coinbase did not solicit investors to trade these tokens, which led to the Judge dismissing the complaints made under the Securities Act.

The Judge also addressed the claims made under the Exchange Act, which alleged that Coinbase promoted illegal transactions. To this claim, the Judge responded that the Coinbase user agreement did not portray any illegal acts, and the complaint was dismissed.

The Judge also dismissed national claims filed with the lawsuit with prejudice, which means that the plaintiffs cannot file these claims again. The suit also had claims under the New Jersey, California, and Florida laws, and these were also dismissed, but without prejudice. The Judge noted that the court did not invest ample resources in resolving the state claims.

COIN shares have reacted to the dismissal and are up by double-digits. However, Coinbase is facing another class action lawsuit filed in August last year. The lawsuit filed in the Northern District Court of Georgia accuses Coinbase of failing to safeguard user wallets and preventing users from accessing accounts during periods of high market volatility.

Another major win for the crypto industry

Coinbase’s win in this class action lawsuit marks another major win for the crypto community after LBRY Credits won an appeal against the US Securities and Exchange Commission. An appeal hearing in the LBRY vs. SEC case led to the Judge dismissing the claims arguing that the secondary market sales for the LBC token were not securities.

In November 2022, the SEC received a ruling in its favor after the Judge classified LBC as an investment contract. However, in the appeal hearing where the SEC was seeking clarity on the ambiguity of the initial judgment, Attorney John Deaton argued that LBC secondary market sales were not securities, to which the Judge agreed.

The SEC has previously said that the majority of cryptocurrencies in the market are securities. To this effect, the SEC has already filed lawsuits against Ripple, Gemini, and Genesis, accusing them of selling unregistered securities.

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