A U.S. District Judge on Thursday dismissed the majority of a proposed class-action lawsuit against Coinbase Global Inc. that accused the cryptocurrency exchange of illegally selling securities. The lawsuit, filed by customers, alleged that Coinbase operated as an unregistered securities exchange and broker-dealer.
The ruling was issued by U.S. District Judge Paul Engelmayer in Manhattan. The plaintiffs in the case claimed that Coinbase violated federal and state laws by selling 79 types of digital tokens which they argued were unregistered securities. Their legal argument centered on the assertion that they purchased these assets directly from Coinbase, making the company the seller in the transactions.
In his decision, Judge Engelmayer stated that the plaintiffs’ own user agreement with Coinbase undermined their claims. He found that the agreement established Coinbase as an agent acting on behalf of its customers, rather than a direct seller. According to the ruling, legal title for the purchased digital assets passed from other users on the platform to the plaintiffs, with Coinbase facilitating the transaction.
“The contracts’ terms establish that plaintiffs’ ownership of the tokens they bought was locked in at the time their orders were placed, and that Coinbase, acting as their agent, was obligated to later acquire from third parties and deliver the identified tokens to their accounts,” Engelmeyer wrote in his decision.
While the court dismissed the core claims related to the direct sale of tokens, it allowed a smaller portion of the lawsuit to proceed. Judge Engelmayer ruled that claims concerning Coinbase’s staking and rewards programs could move forward. The plaintiffs alleged that through these programs, where users can earn rewards by holding certain cryptocurrencies, Coinbase was engaged in the sale of unregistered securities. The judge found these specific claims were plausible enough to warrant further legal proceedings.
The case is separate from regulatory scrutiny faced by the company. The U.S. Securities and Exchange Commission (SEC) has publicly stated it is investigating whether Coinbase lists digital assets that should have been registered as securities.
The lawsuit is Underwood et al v. Coinbase Global Inc et al, U.S. District Court, Southern District of New York, No. 21-08358. Attorneys for the plaintiffs are from the law firms Selendy Gay Elsberg and Roche Freedman. Representatives for Coinbase and the plaintiffs have not issued public statements on the ruling at this time.
