Coinbase crypto exchange has achieved a significant victory in an ongoing lawsuit. The United States Court of Appeals for the Second Circuit ruled in favor of Coinbase, confirming that secondary sales of cryptocurrencies on its platform do not violate the Securities Exchange Act.
The court’s decision affects a nationwide group of people who traded tokens on Coinbase from Oct. 8, 2019, to March 11, 2022. At the heart of the dispute was whether cryptocurrencies traded on Coinbase met the criteria for securities.
The plaintiffs lodged federal claims under Sections 5, 12(a)(1) and 15 of the Securities Act 1933, alongside Sections 5, 15(a)(1), 20(a) and 29(b) of 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 contended that Coinbase’s actions amounted to offering and selling unregistered securities. Furthermore, they accused it of violating various provisions of securities laws.
However, Coinbase argued that secondary crypto asset sales didn’t meet securities transaction criteria, disputing the relevance of securities regulations. The court examined various aspects, ultimately overturning some of the lower court’s decisions while upholding others.
The court determined Coinbase’s potential liability under Section 12(a)(1) of the Securities Act for vending unregistered securities. However, it rejected the plaintiffs’ Securities Exchange Act claims, citing insufficient proof of transaction-specific contracts needed for rescission under Section 29.
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The court’s decision hinged significantly on interpreting Coinbase’s user agreements, which evolved over time. Varying language across versions complicated title and privity issues critical to the case. Clarity on the applicable user agreement version was emphasized, with discrepancies hindering a definitive resolution.
The plaintiffs view the ruling as a step forward in holding crypto platforms accountable under securities laws, advocating for investor protection in the evolving crypto space. Conversely, Coinbase asserts the decision reinforces its position that secondary crypto sales aren’t securities transactions.
Furthermore, Coinbase stressed the necessity of regulatory clarity to foster innovation within the industry. The court’s verdict has substantial consequences for overseeing cryptocurrencies and digital assets.
Coinbase chief legal officer Paul Grewal expressed gratitude on X social platform, stating that the court reaffirmed no private liability for secondary trading of digital assets on exchanges like Coinbase under federal securities law, emphasizing the significance of contracts.
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