A U.S. District Court judge has dismissed a lawsuit filed by crypto exchange customers against Coinbase and its CEO Brian Armstrong. The lawsuit alleged that Coinbase sold 79 crypto tokens that were unregistered securities.
Customer 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 U.S. District Court Judge Paul Engelmeyer on Wednesday, meaning they will not be filed again, Reuters reported.
The lawsuit was filed last March against Coinbase Global, Inc. and CEO Brian Armstrong. The plaintiffs accused the crypto exchange of selling 79 crypto tokens, unregistered securities, and failing to register as a broker-dealer. In the lawsuit, the plaintiffs allege that because Coinbase is not registered with the U.S. Securities and Exchange Commission (SEC), the agreement is illegal and seek damages for the sale or solicitation of crypto tokens.
Plaintiffs argued that, unlike some crypto trading platforms that only match buyers and sellers, Coinbase acts as a “middleman” and is the “actual seller” of the crypto tokens. It argued that this allowed the NASDAQ-listed crypto exchange to collect transaction fees without complying with traditional securities disclosure rules designed to protect investors.
Judge Engelmeyer ruled that without declaring whether the 79 crypto tokens were securities, customers could not prove that the crypto exchanges held or sold ownership of the crypto tokens traded on the Coinbase and Coinbase Pro platforms The court ruled that it could not.
Additionally, the judge found that Coinbase was not directly involved in the transactions, although it allegedly participated in the “airdrop” to promote the crypto tokens by highlighting its “intended value proposition” and to increase transaction volume.
Coinbase previously stated that it had received a subpoena from the SEC, noting that securities regulators were seeking information about the platform’s listing process, among other things.
U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler confirmed that Bitcoin is a commodity, but stressed that most other crypto tokens are securities. He repeatedly urged crypto trading and lending platforms to come and be registered with the SEC.
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