Coinbase earned a lawsuit win against its customers for allegedly selling tokens illegally and acting as an unregistered broker-dealer.
Tokens being sold illegally, customers claim
In case number 21-08353 entitled Underwood et al. v. Coinbase Global Inc., which was filed in the U.S. District Court for the Southern District of New York, the plaintiffs claimed that the cryptocurrency exchange functioned as an “intermediary,” making it the “actual seller” of the tokens.
According to them, Coinbase was able to earn transaction fees while circumventing disclosure regulations designed to safeguard investors in conventional securities.
However, U.S. District Judge Paul Engelmayer ruled that consumers who transacted on the Coinbase and Coinbase Pro trading platforms could not demonstrate that the company sold or retained ownership of the 79 digital tokens they exchanged.
Coinbase wins the lawsuit
The court ruled that Coinbase had no direct involvement in the transactions, despite purportedly promoting tokens by explaining their supposed value proposition and engaging in “airdrops” to increase trade volume.
The court rejected the claims with prejudice, which means that they cannot be raised again.
“These activities of an exchange are of a piece with the marketing efforts, materials and services that courts … have held insufficient” (to claim that the exchange is a seller), Engelmayer wrote.
Though the dismissal of the Underwood class action complaint is a success for Coinbase, the publicly-traded U.S.-based cryptocurrency exchange is currently engaged in a game of whack-a-mole with other class action claims in several jurisdictions, including Georgia and New Jersey.