Federal Appeals Court Revives Lawsuit Against Coinbase Over Unregistered Securities Claims

A federal appeals court has breathed new life into a lawsuit against Coinbase, challenging the cryptocurrency exchange’s alleged sale of unregistered securities and failure to operate as a registered broker-dealer. The case now returns to U.S. District Court for further examination.

On Friday, a federal appeals court revitalized a lawsuit against Coinbase, the leading cryptocurrency exchange in the U.S., over allegations of selling unregistered securities without the proper broker-dealer registration. 

Coinbase Argues to the SEC: DEXs Cannot Be Regulated as Exchanges

The 2nd U.S. Circuit Court of Appeals in Manhattan critiqued a lower court’s decision that relied on a December 2021 user agreement, which suggested Coinbase did not own or sell any of the 79 disputed tokens traded by its customers.

The appeals court unanimously found that Coinbase’s user agreements had significantly evolved over time, making the 2021 agreement non-definitive for assessing the plaintiffs’ allegations. Moreover, the customers contending in the class action argued that they had not agreed to the latest version of the user agreement, deeming it inapplicable for dismissing their lawsuit.

While the decision maintained the rejection of claims under the federal Securities Exchange Act that sought to undo some transactions, it sent the lawsuit back to U.S. District Judge Paul Engelmayer in Manhattan. Judge Engelmayer had previously dismissed the lawsuit in February 2023.

Coinbase’s Chief Legal Officer Paul Grewal reacted to the partial dismissal of the claims on the social media platform X, asserting the significance of contracts in the trading of digital assets on exchanges like Coinbase.

Jordan Goldstein, representing the customers, expressed satisfaction with the court’s decision and the intention to proceed with their case against Coinbase and CEO Brian Armstrong. The lawsuit challenges Coinbase’s lack of direct involvement in transactions, despite the exchange’s alleged promotion of the tokens and distribution of free tokens to stimulate trading.

This development follows a March 27 decision by U.S. District Judge Katherine Polk Failla in Manhattan, rejecting Coinbase’s request to dismiss an SEC lawsuit that accused the exchange of enabling the trade of tokens that should have been registered as securities.

The ongoing case, Oberlander et al v Coinbase Global Inc et al, continues in the 2nd U.S. Circuit Court of Appeals, under case number 23-184.

Also Read, FTX Estate Sells $1.9 Billion in SOL Tokens to Reduce Debt

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