Coinbase Wins Dismissal of Most Claims in Unregistered Securities Lawsuit

Coinbase has secured the dismissal of the majority of a proposed class-action lawsuit from customers who accused the cryptocurrency exchange of illegally selling unregistered securities. A U.S. District Judge ruled that for the vast majority of transactions on its platform, Coinbase does not legally qualify as the seller of the digital assets.

Details of the Ruling

In a decision on Thursday, U.S. District Judge Paul Engelmayer in Manhattan drew a critical distinction between two types of transactions on the platform. The lawsuit, which began in 2021, involved customer claims over 60 different tokens, including XRP and Dogecoin.

The judge dismissed all claims related to "matched" transactions, where Coinbase acts as an intermediary to pair customer buy and sell orders. According to the ruling, these transactions account for an estimated 99.97% of the exchange's trading volume, representing hundreds of billions of dollars.

However, the judge allowed claims to proceed for "inventory" transactions. In these cases, Coinbase sells tokens directly from its own holdings to customers. These transactions, while a small fraction of the total volume, still amounted to at least $178 million in sales.

Legal Rationale and Market Impact

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The case centered on whether Coinbase could be defined as a "statutory seller" under the federal Securities Act of 1933. Judge Engelmayer determined that for matched trades, Coinbase did not pass legal ownership of the tokens to buyers, nor did it actively solicit the purchases. Instead, it provided a platform with basic token information and price history.

Conversely, for inventory sales, the judge found that Coinbase was a statutory seller because it directly passed the title of the tokens it owned to the buyers. This part of the lawsuit will continue.

The ruling is a significant legal victory for Coinbase, as it shields its core exchange business model from a major avenue of securities litigation. The cryptocurrency trade group Digital Chamber had supported Coinbase, arguing that an overly broad definition of a statutory seller could harm innovation and push trading to offshore exchanges.

This decision follows other legal developments for the company, including the dismissal of other federal securities law claims in this same case in 2023. Separately, the U.S. Securities and Exchange Commission (SEC) ended a lawsuit last year that had also accused Coinbase of trading unregistered securities.