Judge dismisses lawsuit claiming Coinbase sold unregistered securities

Judge dismisses lawsuit claiming Coinbase sold unregistered securities

In a Wednesday ruling, U.S. District Court Judge Paul Engelmayer dismissed a proposed class action lawsuit filed by Coinbase customers accusing the company of failing to register as a broker-dealer and selling unregistered securities.

In October 2021, clients filed a class action suit in federal court in New York, claiming that in contrast to platforms that match buyers and sellers, Coinbase operated as a middleman, thus serving as the “actual seller” of crypto assets. Using this setup, Coinbase can charge transaction fees while circumventing disclosure laws designed to protect investors.

As described in the suit, Coinbase promotes the sale of the assets by providing descriptions of various crypto assets, tracking cryptocurrency price movements and providing links to articles about crypto.

As the platform is not registered with the U.S. Securities and Exchange Commission (SEC), the consumers claimed that the sale and solicitation of 79 digital assets constituted illegal contracts.

Coinbase and Coinbase Pro customers who traded digital assets on Coinbase’s platforms could not prove the company owned or sold the tokens they traded, according to Judge Engelmayer.

While Coinbase allegedly marketed tokens by describing their “purported value proposition” and participating in “airdrops” of free tokens to increase trading volume, the judge found it was not directly involved in the transactions.

Crypto industry under scrutiny

The proposed class suit was dismissed with prejudice, meaning it cannot be re-filed. The SEC has issued investigation subpoenas to Coinbase concerning its services, including asset listing.

As cryptocurrency prices tumbled and several key players went bankrupt, the crypto industry has come under criticism. The SEC charged Genesis Global Capital and Gemini Trust with selling unregistered securities in the past month.

Last April, a similar lawsuit against Binance was dismissed at U.S. District Court, ruling that Binance was not a domestic exchange, despite having much of its infrastructure in the U.S.