- Customers involved in the lawsuit are seeking unspecified damages from Coinbase.
- However, the exchange maintains that it does not offer or sell securities through its platform.
Coinbase, the largest cryptocurrency exchange in the US, must answer allegations from customers who claim the company illegally sold securities without proper registration. A federal judge in Manhattan ruled on Friday that the lawsuit could proceed, rejecting Coinbase’s argument that it was not a statutory seller of digital tokens, Reuters reported.
The decision marks another legal hurdle for the exchange, which is already facing regulatory scrutiny from the US Securities and Exchange Commission (SEC).
US District Judge Paul Engelmayer dismissed Coinbase’s claim that it never transferred ownership of the 79 digital tokens at issue. Instead, he pointed to allegations that customers transacted directly with Coinbase rather than with other users. This distinction, he ruled, meant Coinbase could be considered a direct seller under securities law.
Additionally, the judge declined to dismiss related claims under state laws in California, Florida, and New Jersey. “Customers on Coinbase transact solely with Coinbase itself,” the judge noted, reinforcing the idea that the company may have been directly involved in unregistered securities sales.
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Coinbase Responds To Lawsuit
Coinbase maintains that it does not offer or sell securities through its exchange. This is not the first time the case has made its way through the courts. In February 2023, the lawsuit was initially dismissed.
However, in April 2023, the 2nd US Circuit Court of Appeals revived key portions of the case, allowing the lawsuit to move forward. Customers are seeking unspecified damages.
Beyond the customer lawsuit, Coinbase is also battling the SEC, which has accused the exchange of enabling the trading of tokens that should have been classified as securities. The SEC argues that Coinbase should have registered as a broker-dealer.
In a Jan. 17 filing, Coinbase told the appeals court that a ruling in its favor could “clear away the cloud that currently hangs over the cryptocurrency market.” However, for now, the exchange remains entangled in multiple legal battles that could have significant implications for the broader crypto industry.
The legal landscape for cryptocurrency exchanges continues to shift as regulators and courts grapple with how to classify digital assets. With both the SEC lawsuit and the customer-led case moving forward, Coinbase faces increased scrutiny over its business practices.
