Coinbase secured a rare crypto legal victory this week when a Manhattan federal judge dismissed a class-action suit. The suit claimed the exchange violated the Securities and Exchange Acts and failed to register as a New York state broker-dealer. Coinbase shares surged overnight; by Thursday morning, it was nearly 12%.
The plaintiffs claimed Coinbase owned the crypto assets that it sold to end-users and that Coinbase’s ownership meant it “held title” over those tokens. But in a 27-page opinion, U.S. District Judge Paul Engelmayer noted contradictory claims from the plaintiffs and pointed to Coinbase’s user agreement, which says users were neither buying nor selling digital currency from the exchange and that “at all times,” the title to a user’s currency remained with the user.
The judge dismissed the federal claims on Wednesday with prejudice. Citing the dismissal of another crypto class action against Binance, Engelmayer wrote that the class-action complaints failed to establish Coinbase’s status as an “immediate seller” or title holder.
The plaintiffs had also claimed that Coinbase’s marketing showed an effort to solicit a sale of securities. Engelmayer, however, dismissed that argument. The suit was lodged in Oct. 2021 and mentioned Coinbase CEO Brian Armstrong as the primary “control person” at the exchange.
The company, however, declined to comment on the ruling. It comes as Securities and Exchange Commission chair Gary Gensler aggressively pursues actions in the crypto space in part by arguing they represent securities offerings. Earlier this year, Gensler announced a joint enforcement action against crypto exchange Gemini and the now-bankrupt crypto lender Genesis Trading.
At the time, Gensler said those charges made clear to the marketplace and the investing public that crypto lending platforms and other intermediaries must comply with our time-tested securities laws.