A U.S. federal judge has ruled that Coinbase must face an investor lawsuit alleging the exchange sold unregistered securities. The decision rejects Coinbase’s claim that it does not qualify as a “statutory seller” under federal law.
Judge Rules Against Coinbase in Securities Case
On Feb. 7, U.S. District Judge Paul Engelmayer ruled that Coinbase must answer to allegations that it sold 79 cryptocurrencies deemed as securities without registering as a broker-dealer. The lawsuit, which was initially dismissed in February 2023, was later revived by the Circuit Court of Appeals.
Engelmayer noted that Coinbase functions as a direct counterparty in transactions, reinforcing the argument that it acted as a seller. This interpretation contradicts Coinbase’s position that it merely provides a platform for trades.
Coinbase Responds, Maintains It Does Not Sell Securities
Following the ruling, Coinbase maintained that it does not list, offer, or sell securities on its exchange. A company spokesperson emphasized that the judge’s decision significantly limited the scope of discovery in the case.
“We look forward to vindicating the remaining claims in the district court,” the spokesperson stated.
The lawsuit adds to Coinbase’s ongoing legal battle with the U.S. Securities and Exchange Commission (SEC). Since June 2023, the SEC has accused the exchange of operating an unregistered securities platform and failing to register as a broker.
Broader Legal Battles and Regulatory Challenges
Beyond its lawsuit with the SEC, Coinbase has also taken legal action against the SEC and the Federal Deposit Insurance Corporation (FDIC). The exchange alleges that both agencies have attempted to restrict digital-asset firms from accessing essential banking services and have failed to comply with Freedom of Information Act (FOIA) requests.
Coinbase plays a crucial role in the U.S. crypto industry, serving as the largest cryptocurrency exchange by trading volume and the primary custodian for U.S. spot Bitcoin exchange-traded funds (ETFs).
As regulatory scrutiny intensifies, the outcome of these lawsuits could have significant implications for the future of cryptocurrency exchanges in the U.S.
