In a significant development for the cryptocurrency industry, a federal appeals court has revived a lawsuit against Coinbase, the largest U.S. cryptocurrency exchange. The lawsuit, initiated by Coinbase customers, alleges that the exchange engaged in the illegal sale of unregistered securities and operated without proper registration as a broker-dealer.
The 2nd U.S. Circuit Court of Appeals in Manhattan overturned a lower court’s decision, highlighting that a December 2021 user agreement should not have been used as the sole basis to dismiss the case. The court emphasized that Coinbase had made significant changes to its user agreements over time, rendering the December 2021 version inconclusive in evaluating the customers’ legal claims. Moreover, customers argued that they did not accept this version, rendering it irrelevant to their case.
While the appeals court revived the lawsuit against Coinbase, it upheld the dismissal of claims under the federal Securities Exchange Act. This aspect of the ruling signifies a nuanced legal interpretation concerning the nature of transactions on Coinbase’s platform.
Coinbase’s chief legal officer, Paul Grewal, expressed the exchange’s satisfaction with the dismissal of certain claims, citing the significance of contracts in determining liability. On the other hand, Jordan Goldstein, representing the customers, welcomed the court’s decision and affirmed their commitment to pursuing legal action against Coinbase and its CEO, Brian Armstrong.
The court’s decision challenges Coinbase’s assertion that it is not directly involved in transactions on its platform. Despite the dismissal of some claims, the revival of the lawsuit underscores the ongoing legal scrutiny faced by cryptocurrency exchanges regarding their compliance with securities regulations. Moreover, the ruling adds to Coinbase’s legal woes, as it grapples with an ongoing Securities and Exchange Commission lawsuit alleging illegal facilitation of token trading.
The ruling of the federal appeals court injects new momentum into the legal battle against Coinbase, highlighting the complexities surrounding the regulatory landscape of the cryptocurrency industry. As Coinbase and other exchanges navigate these legal challenges, the outcome of this lawsuit could have far-reaching implications for the future regulation and operation of cryptocurrency exchanges.
