Coinbase won dismissal of a lawsuit by consumers alleging the cryptocurrency exchange facilitated the sale of unregistered securities on its platform.
The proposed class action, filed in federal court in New York in October 2021, sought damages arising from the sale or soliciting of 79 digital assets that the consumers say amounted to illegal contracts because the platform is not registered with the U.S. Securities and Exchange Commission.
U.S. District Judge Paul A. Engelmayer didn't make a determination about whether the digital tokens were actually securities, though he said he assumed they were for the purposes of the dismissal request by Coinbase. Had the suit been allowed to proceed, the question of whether they are securities would have been a "central battleground," he said.
Engelmayer said the terms of Coinbase's user agreement "flatly contradict" allegations in the lawsuit that the company holds title to the digital assets that are bought and sold on the exchange. The judge also found that the platform didn't actively solicit investments.
The suit alleged that Coinbase promoted the sale of the tokens by providing users with descriptions and their purported value, as well as by participating in promotions, giving news updates about cryptocurrency price movements and links to web stories. But Engelmayer said those activities "are of a piece with the marketing efforts, 'materials,' and 'services' " that courts have determined are not active solicitation.
A judge in the same court last April dismissed a similar lawsuit against Binance, the world's largest crypto platform, finding that the claims were filed too late and that U.S. securities laws didn't apply because Binance is not a domestic exchange despite the fact that much of its infrastructure is based in the U.S.
The case is Christopher Underwood v Coinbase Global Inc., 21-cv-8353, US District Court, Southern District of New York.
