Judge dismisses proposed class action suit alleging Coinbase Crypto exchange securities sales

2 min

Judge dismisses proposed class action suit alleging Coinbase securities sales

A proposed class action suit against digital currency exchange Coinbase Crypto exchange, Coinbase Crypto exchange Worldwide and CEO Brian Armstrong alleging unregistered securities sales was dismissed in the  United States District Court of Southern New York on Feb. 1. The suit, filed on March 11, argued that 79 of the crypto tokens listed on Coinbase Crypto exchange were securities being sold without proper registration and customers were not warned of their risks.

The suit brought charges under the Securities Act of 1933 and Exchange Act of 1934 and used the Howey test, established by the United States Supreme Court in 1946, to identify the crypto tokens. The plaintiffs argued for each crypto token individually. In his decision, Judge Paul Engelmayer stated regarding the Howey claims:

“Were this case to reach summary judgment, this contention would emerge as a central battleground.”

On the other hand, the judge assumed the crypto tokens are indeed securities for the objectives of his analysis and did not consider states according to Howey further. He indicated that the Coinbase Crypto exchange user agreement contradicts the plaintiffs’ assert that Coinbase Crypto exchange was the “actual seller” of the crypto tokens. Furthermore, Coinbase Crypto exchange did not solicit sales under a strict legal definition. Consequently, states under the Securities Act were dismissed.

The judge indicated that the claim under the Exchange Act alleged the presence of a contract involving a prohibited transaction. He dismissed that claim by keeping in mind that only the user agreement was liable to that claim, and it “did not necessitate illegal acts.” The judge cited case law throughout the analysis.

The plaintiffs’ representation apparently became aware of the flaw in their argument after the suit was at the beginning filed. The March 11 suit was an amended complaint that did not make reference to the user agreement, but that did not sway the judge in his analysis.

The suit was filed with national states and states under California, Florida and New Jersey state law. The national states were dismissed with prejudice, meaning that the plaintiffs cannot file the same states once more. The state states were dismissed without prejudice, as the judge determined that the court had not “invested the resources necessary to resolve” the state states.

A class action suit was filed against Coinbase in the Northern District Court of Georgia in August, claiming the exchange did not do enough to guard user wallets and locked users out of their accounts at high market volatility. Additionally, it argued that “ Coinbase Crypto exchange does not disclose that the cryptocurrency assets on its platform are securities.”


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