The legal battle regarding the classification of secondary crypto sales on Coinbase comes to an end with the victory of Coinbase as the US Court of Appeals for the Second Circuit now ruled the transactions on the exchange do not fall under the purview of the Securities Exchange Act of 1934.
This verdict holds significance for crypto enthusiasts nationwide who engaged in token trading on Coinbase between October 8, 2019, and March 11, 2022. The lawsuit centered on whether the cryptocurrencies traded on the platform qualified as securities – a designation that would subject them to stricter regulations.
The plaintiffs, a nationwide class, argued that the exchange enabled the unregistered sale and offering of securities, breaking different Securities Act of 1933 and Securities Exchange Act rules. They claimed Coinbase’s actions violated securities law. The exchange argued secondary crypto sales did not meet the criteria for securities transactions under the law. The Court of Appeals carefully delivered a mixed decision.
Coinbase Receives Mixed Verdict on Securities Laws
The court supported part of the lower court’s ruling. It said Section 12(a)(1) of the Securities Act could possibly hold Coinbase responsible for selling unregistered securities. But, it dismissed the plaintiffs’ claims under Section 29 of the Securities Exchange Act due to lack of evidence about unique contracts linked to the transactions.
An important part of the case was understanding Coinbase’s changing user agreements. The court found this challenging, making it hard to rule on their implications definitively. While the exchange views this as confirmation that secondary crypto sales aren’t securities transactions, the plaintiffs see it as a step toward enforcing securities laws on crypto platforms. This shows the ongoing debate about crypto regulation.
The Court of Appeals’ decision impacts how crypto transactions are monitored. Recognizing this, the exchange emphasizes the urgent need for clear regulations to foster crypto innovation. Paul Grewal, Coinbase’s Chief Legal Officer, expressed gratitude on X (formerly Twitter) for the court’s decision.
He highlighted the court’s reiteration that, under current federal securities laws, there is no private liability for secondary trading of digital assets on exchanges like Coinbase.
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