Judge Gives Coinbase Glimmer of Hope, Dismisses Lawsuit

A US district judge has brought much-needed relief to prominent crypto exchange Coinbase by dismissing a proposed class action lawsuit against them on Wednesday. This news comes as a much-needed breath of fresh air for the exchange, which has faced numerous challenges in recent times, including substantial fines and the loss of key staff members.

The dismissal is also a much needed positive bit of cryptocurrency regulation news in the wake of a tough year for cryptocurrency markets in 2022.

Background on the Coinbase Lawsuit

In the fall of 2021, a group of former Coinbase users brought a class-action suit against Coinbase in a New York federal court. The plaintiffs claimed that the exchange participated in the sale of unregistered securities via its platform by allowing the sale of 79 digital assets. According to the claimants, these sales constituted illegal contracts as Coinbase is not registered with the Securities and Exchange Commission (SEC).

The suit sought to hold Coinbase accountable for its role in the transactions, alleging that the exchange held title to the digital assets and acted as an intermediary. However, the basis of these claims was challenged by U.S. District Judge Paul A. Engelmayer, who ultimately dismissed the suit.

This is a HUGE bit of news for the future of $LCX being deemed clearly not a security like the SEC claimed! SEC are scammers. https://t.co/V26zuSc5ma

— Adii?(?,?) (@adxsir) February 1, 2023

Reasons for the Coinbase Lawsuit Dismissal

One of the key accusations made by the plaintiffs in the lawsuit was that Coinbase held title to the digital assets on its platform. However, Judge Engelmayer dismissed this argument, stating that the terms of the exchange’s user agreement “contradict” this notion. The plaintiffs also claimed that Coinbase acted as an intermediary and was therefore the “actual seller” of the digital assets. However, Engelmayer ruled that the exchange had no direct involvement in the transactions.

Another aspect of the lawsuit was the claim that Coinbase had actively solicited investments. The plaintiffs argued that the exchange had promoted the sale of tokens through value propositions and “airdrops” of free tokens. However, Judge Engelmayer determined that these were merely marketing efforts rather than active solicitation.

“These activities of an exchange are of a piece with the marketing efforts, materials and services that courts … have held insufficient” to qualify defendants as sellers, wrote Engelmayer.

Engelmayer also noted that he did not reach a conclusion on whether the digital assets in question were actually securities. He presumed they were in order to grant Coinbase’s request for dismissal, as this debate would have been the “central battleground” if the lawsuit had proceeded.

The judge issued a dismissal order that precluded any future litigation regarding the federal securities law claims, signaling a positive sign for cryptocurrency regulation news in general, since this could set a precident for future cases.

Coinbase Rejoices on Positive Cryptocurrency Regulation News

The decision of the court to dismiss the lawsuit must have brought immense relief for Coinbase.

The dismissed lawsuit attempted to prevent the exchange from trading tokens without being registered as a securities exchange or broker-dealer and also sought compensation for any losses and transaction fees incurred.

Coinbase had also been facing an ongoing legal battle over allegations of insider trading and market manipulation, which would have resulted in severe consequences for the company if found guilty.

The Security and Exchange Commission (SEC) recently issued subpoenas to Coinbase in order to investigate its customer programs, particularly the processes for listing assets.

The crypto industry has seen more scrutiny over the past year with plummeting cryptocurrency prices and bankruptcies of major players such as Sam Bankman-Fried’s FTX exchange and the Three Arrows Capital hedge fund.

Other Cryptocurrency Regulation News

Coinbase even tried to sell people interest paying products

just like Celcius, BlockFi and Gemini earn
(all bankrupt now)

but the SEC stopped them
which was a blessing in disguise pic.twitter.com/zX5gRDu5CP

— Crypto Tea (@CryptoTea_) January 25, 2023

After a Manhattan judge dismissed a similar lawsuit by Binance customers last March, customers are now appealing the dismissal.

Meanwhile, last month, the United States Securities and Exchange Commission (SEC) also filed charges against Genesis Global Capital, which has since gone bankrupt, as well as Gemini Trust run by Cameron and Tyler Winklevoss for unlawfully selling unregistered securities.

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