Coinbase has been cleared of wrongdoing in a lawsuit regarding cryptocurrency transactions, with the court’s decision primarily based on the interpretation of Coinbase’s user agreements, which changed over time.
The U.S. Court of Appeals for the Second Circuit has ruled in favor of Coinbase, a leading cryptocurrency exchange. This ruling confirms that the buying and selling of cryptocurrencies on its platform do not violate the Securities Exchange Act.
The decision impacts a group of people nationwide who traded tokens on Coinbase between Oct. 8, 2019, and March 11, 2022. At the core of the disagreement was whether the cryptocurrencies traded on Coinbase qualified as securities.
The plaintiffs brought forward federal claims under various sections of the Securities Act of 1933 and the Securities Exchange Act of 1934, as well as state law claims related to securities legislation in California, Florida, and New Jersey. They represented a class of individuals from across the country.
The plaintiffs argued that Coinbase’s actions constituted the offering and selling of unregistered securities and accused the company of violating securities laws.
However, Coinbase argued that the secondary sales of crypto-assets did not meet the criteria for securities transactions, challenging the relevance of securities regulations. The Court of Appeals reviewed several aspects of the case, overturning some decisions made by the lower court while affirming others.
The court found Coinbase potentially liable under Section 12(a)(1) of the Securities Act for selling unregistered securities. However, it rejected the plaintiffs’ claims under the Securities Exchange Act, citing insufficient evidence of transaction-specific contracts required for rescission under Section 29.
The court’s decision heavily relied on interpreting Coinbase’s evolving user agreements. Differences in language across different versions of the agreements complicated issues related to ownership and contractual relationships crucial to the case. Clarity regarding which version of the user agreement applied was emphasized, as discrepancies impeded a definitive resolution.
The plaintiffs see the ruling as progress in holding cryptocurrency platforms accountable under securities laws, advocating for investor protection in the changing crypto landscape. Conversely, Coinbase maintains that the decision supports its stance that secondary crypto sales do not constitute securities transactions.
Coinbase also emphasized the importance of regulatory clarity to promote innovation within the industry. The verdict from the Court of Appeals has significant implications for regulating cryptocurrencies and digital assets.
Additionally, Coinbase’s Chief Legal Officer, Paul Grewal, expressed gratitude on a social platform, stating that the Second Circuit reaffirmed that there is no private liability for secondary trading of digital assets on exchanges like Coinbase under federal securities law, highlighting the importance of contracts.
