In a ruling on Friday, U.S. District Judge Paul Engelmayer in Manhattan determined that Coinbase must confront a lawsuit filed by customers who alleged that the leading U.S. cryptocurrency exchange unlawfully sold securities without registering as a broker-dealer.
Engelmayer rejected Coinbase's argument that it did not meet the criteria of a "statutory seller" under federal securities law, pointing out that the customers traded directly with Coinbase, which implies Coinbase's seller status.
The judge also declined to dismiss claims under California, Florida, and New Jersey laws, stating that customers adequately claimed Coinbase's direct involvement in selling the tokens.
Coinbase responded by stating, "Coinbase does not list, offer, or sell securities on its exchange," expressing eagerness to defend the remaining claims.
The lawsuit, initially dismissed in February 2023 by Engelmayer, had some aspects reinstated by the 2nd U.S. Circuit Court of Appeals in Manhattan last April. The recent ruling allows these parts to move forward, with customers seeking unspecified damages.
The U.S. Securities and Exchange Commission has separately sued Coinbase, alleging unauthorized trading of tokens that should have been registered as securities.
Coinbase temporarily paused this case last month to seek guidance from the 2nd Circuit on whether digital token trades are considered investment contracts requiring securities regulation based on a 1946 Supreme Court precedent.
Coinbase has highlighted that the appeals court's decision could potentially resolve uncertainties surrounding the cryptocurrency market.
The case is Underwood et al v Coinbase Global Inc et al, U.S. District Court, Southern District of New York, No. 21-08353.