Coinbase Faces Class-Action Lawsuit Over Alleged Securities Sales
Leading cryptocurrency exchange Coinbase is embroiled in a class-action lawsuit brought forth by several customers. The lawsuit accuses Coinbase of selling securities without proper registration as a dealer-broker. This legal challenge surfaces as the exchange is involved in an interlocutory appeal in an ongoing conflict with the US Securities and Exchange Commission (SEC).
Legal Setback for Coinbase: Motion to Dismiss Rejected
According to a report by Reuters on February 7, US District Judge Paul Engelmayer in Manhattan has mandated that Coinbase must stand trial over allegations of functioning as an unregistered broker. The charges involve the sale of 79 tokens, which a group of customers considers securities. Judge Engelmayer dismissed Coinbase’s defense that it wasn’t a “statutory seller” under US securities laws, pointing out that the exchange never directly transferred the titles of all tokens acquired by its customers. The judge emphasized that Coinbase acts as a direct seller, as transactions on its platform are conducted with “Coinbase itself.”
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This case was previously dismissed by Judge Engelmayer in February 2023. However, the 2nd US Circuit Court of Appeals in Manhattan revived the lawsuit, citing reliance on a December 2021 user agreement in the initial ruling. With Engelmayer’s latest decision, Coinbase braces for a potentially arduous legal confrontation. The exchange maintains its stance, asserting it does not “list, offer, or sell securities on its platform” and is prepared to defend its position in district court.
Amid these ongoing legal disputes, Coinbase is also contending with a more formidable lawsuit from the SEC. The regulatory body accuses the exchange of operating as an unregistered broker-dealer and unlawfully selling unregistered securities through its staking program. Currently, this case is paused as Coinbase successfully obtained an ongoing interlocutory appeal. This appeal challenges the application of the Howey test to digital assets under US securities law. A favorable ruling for Coinbase in this appeal could redefine crypto sales, potentially excluding them from being classified as securities transactions and weakening the SEC’s claims in this and other crypto-related cases.
Coinbase’s Potential to Become a $1 Trillion Powerhouse
In related developments, Matt Hougan, Chief Investment Officer of Bitwise and a noted figure in the crypto world, speculates that Coinbase could evolve into a $1 trillion entity. Hougan attributes this potential growth to the anti-crypto stance of the previous US administration, which inadvertently created a regulatory barrier around Coinbase, resulting in substantial margins due to limited competition. The exchange’s regulatory battles under this stringent regime have now positioned it to potentially emerge as a leading force in a more crypto-friendly regulatory landscape.
The Bitwise CIO is optimistic about Coinbase’s prospects of becoming a significant financial powerhouse, contingent on the exchange maintaining its current operational strategy amidst a burgeoning crypto market. As of now, the total cryptocurrency market cap stands at $3.09 trillion, reflecting a slight increase of 0.08% in the past day.
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