Coinbase has successfully defended itself in a significant legal battle. The United States Court of Appeals for the Second Circuit ruled in favor of the crypto exchange, stating that the secondary sales of cryptocurrencies on its platform did not breach the Securities Exchange Act.
This decision impacts a wide range of individuals who traded tokens on Coinbase between October 8, 2019, and March 11, 2022. The central issue was whether the cryptocurrencies traded on Coinbase could be classified as securities.
The lawsuit included federal claims under Sections 5, 12(a)(1), and 15 of the Securities Act of 1933, as well as Sections 5, 15(a)(1), 20(a), and 29(b) of the Securities Exchange Act of 1934. The plaintiffs also raised claims under state securities laws of California, Florida, and New Jersey, representing a class of traders nationwide.
The plaintiffs argued that Coinbase engaged in the offering and selling of unregistered securities and violated various securities laws. However, Coinbase countered that the secondary sales of crypto assets did not fit the definition of securities transactions and thus, securities laws did not apply.
The court examined multiple aspects of the case, reversing some decisions of the lower court while upholding others. It specifically addressed Coinbase’s liability under Section 12(a)(1) of the Securities Act concerning the sale of unregistered securities. The court dismissed the claims under the Securities Exchange Act, noting the lack of specific contractual agreements necessary for rescission under Section 29.
A key part of the court’s decision focused on the interpretation of Coinbase’s user agreements, which have changed over time. These variations in language led to complexities regarding title and privity, essential to the lawsuit. The court emphasized the need for clarity on which version of the user agreement was applicable, as discrepancies made it challenging to resolve the case definitively.
While the plaintiffs see this ruling as progress in holding cryptocurrency platforms accountable under securities laws and enhancing investor protection, Coinbase views it as affirmation of their stance that secondary sales of crypto are not securities transactions.
Coinbase also highlighted the importance of regulatory clarity for fostering innovation within the cryptocurrency industry. The ruling is significant for the regulation of cryptocurrencies and digital assets moving forward.
Coinbase’s Chief Legal Officer, Paul Grewal, expressed his gratitude on the social platform X, noting that the court confirmed there is no private liability for secondary trading of digital assets on exchanges like Coinbase under federal securities laws, underscoring the importance of contracts.
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