Coinbase, a leading cryptocurrency exchange, has emerged victorious in an ongoing lawsuit after a significant ruling by the U.S. Court of Appeals for the Second Circuit. The court has confirmed that the secondary sales of cryptocurrencies on Coinbase’s platform do not violate the Securities Exchange Act.
The court’s decision has implications for a nationwide group of individuals who traded tokens on Coinbase between October 8, 2019, and March 11, 2022. The central issue in the dispute was whether the cryptocurrencies traded on Coinbase met the criteria for securities.
The plaintiffs filed federal claims under various sections of the Securities Act of 1933 and the Securities Exchange Act of 1934. They also presented state law claims related to securities legislation in California, Florida, and New Jersey, representing a nationwide class of individuals.
The plaintiffs argued that Coinbase’s actions constituted the offering and selling of unregistered securities, accusing the platform of violating several provisions of securities laws.
However, Coinbase argued that secondary sales of crypto-assets did not meet the criteria for securities transactions, challenging the relevance of securities regulations. The Court of Appeals examined various aspects of the case, overturning some decisions made by the lower court while upholding others.
The court determined that Coinbase could potentially be held liable under Section 12(a)(1) of the Securities Act for vending unregistered securities. However, it rejected the plaintiffs’ claims under the Securities Exchange Act, citing insufficient evidence of transaction-specific contracts required for rescission under Section 29.
The court’s decision heavily relied on the interpretation of Coinbase’s user agreements, which had evolved over time. The varying language in different versions of the agreements complicated issues related to title and privity, which were crucial to the case. Clarity regarding the applicable version of the user agreement was emphasized, as discrepancies hindered a definitive resolution.
The plaintiffs view the ruling as a step towards ensuring accountability of crypto platforms under securities laws, advocating for investor protection in the evolving crypto space. On the other hand, Coinbase asserts that the decision affirms its position that secondary crypto sales are not securities transactions.
Coinbase also highlights the importance of regulatory clarity to foster innovation within the industry. The Court of Appeals’ verdict has significant implications for the regulation of cryptocurrencies and digital assets.
Coinbase’s Chief Legal Officer, Paul Grewal, expressed gratitude on a social platform, stating that the Second Circuit has reaffirmed that there is no private liability for secondary trading of digital assets on exchanges like Coinbase under federal securities law. Grewal emphasized the significance of contracts in this context.
In conclusion, Coinbase’s legal victory in the lawsuit sets a precedent for the treatment of secondary crypto sales and highlights the need for regulatory clarity in the crypto industry.