A US district judge has thrown out a lawsuit against Coinbase and its CEO, Brian Armstrong, brought by clients of the cryptocurrency exchange. The lawsuit alleges that Coinbase sold 79 crypto tokens that are unregistered securities.
Client Lawsuit Against Coinbase Dismissed
A proposed class action lawsuit filed in Manhattan by customers of cryptocurrency exchange Coinbase (Nasdaq: COIN) was dismissed with prejudice by US District Judge Paul Engelmayer on Wednesday, meaning they cannot be refiled, reported Reuters.
The lawsuit was filed against Coinbase Global Inc., Coinbase Inc., and CEO Brian Armstrong in March of last year. The plaintiffs accused the crypto exchange of selling 79 crypto tokens that were unregistered securities and failing to register as a stockbroker. The lawsuit seeks damages for the sale or solicitation of crypto tokens, which the plaintiffs claimed were illegal contracts because Coinbase is not registered with the US Securities and Exchange Commission (SEC).
The plaintiffs claimed that, unlike some cryptocurrency trading platforms that only match buyers and sellers, Coinbase acted as a “middleman”, making it the “actual seller” of the cryptocurrency. They alleged that this allowed the Nasdaq-listed crypto exchange to charge transaction fees without adhering to disclosure rules for traditional securities meant to protect investors.
Without declaring whether the 79 crypto tokens are securities, Judge Engelmayer ruled that the clients could not prove that the cryptocurrency exchange held title to or sold the crypto tokens they traded on the Coinbase and Coinbase Pro platforms.
Furthermore, the judge ruled that Coinbase had no direct involvement in the transactions, despite allegedly promoting the crypto tokens by highlighting their “purported value proposition” and engaging in “airdrops” to increase trading volume.
Coinbase previously said it received subpoenas from the SEC, noting that the securities regulator is seeking information such as the platform’s listing processes.
US Securities and Exchange Commission (SEC) Chairman Gary Gensler confirmed that bitcoin is a commodity, but stressed that most other crypto tokens are securities. He has repeatedly urged cryptocurrency trading and lending platforms to come in and register with the SEC.
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