A U.S. federal judge ruled that Coinbase must face a lawsuit from customers who accuse the crypto exchange of illegally selling unregistered securities.
Judge Paul Engelmayer in Manhattan rejected Coinbase’s claim that it wasn’t a “statutory seller” since it didn’t pass title to 79 tokens traded on its platform. He cited allegations that “customers on Coinbase transact solely with Coinbase itself,” making the company a seller under federal securities law.
Engelmayer also refused to dismiss claims under California, Florida, and New Jersey laws, as customers sufficiently alleged that Coinbase was a direct seller of the tokens.
“Coinbase does not list, offer, or sell securities on its exchange,” the company stated, expressing confidence in its defense. Lawyers for the customers did not immediately comment.
The lawsuit was initially dismissed in February 2023 but was revived last April by the 2nd U.S. Circuit Court of Appeals. Customers are seeking unspecified damages.
Separately, the U.S. Securities and Exchange Commission is suing Coinbase for allegedly enabling trading of unregistered securities. A Manhattan judge recently paused that case to allow Coinbase to appeal whether, under a 1946 Supreme Court ruling, digital tokens qualify as investment contracts requiring regulation.
In a Jan. 17 filing, Coinbase told the appeals court that its decision could “clear away the cloud” over the crypto market.
The case is Underwood et al v. Coinbase Global Inc et al, U.S. District Court, Southern District of New York, No. 21-08353.
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