Coinbase must defend itself in a lawsuit filed by customers who claim that the company illegally sold securities without registering as a broker-dealer, a federal judge ruled on Friday. U.S. District Judge Paul Engelmayer in Manhattan dismissed Coinbase’s argument that it was not a “statutory seller” under federal securities laws because it did not transfer title to the 79 tokens customers traded.
Judge Engelmayer referenced the accusation that Coinbase facilitates transactions solely between itself and the customers, which led to the conclusion that the exchange was acting as a seller. He also rejected the dismissal of claims under the laws of California, Florida, and New Jersey, agreeing that customers adequately argued that Coinbase was a direct seller of the tokens.
Coinbase has consistently stated it does not list, offer, or sell securities on its platform. The company expressed its intent to defend itself against the remaining claims in court. Customer lawyers did not immediately comment on the ruling.
This ruling comes after the 2nd U.S. Circuit Court of Appeals revived parts of the lawsuit in April 2023, which had initially been dismissed by Engelmayer in February of the same year. Customers are seeking unspecified damages.
In addition to the private lawsuit, the U.S. Securities and Exchange Commission (SEC) is also suing Coinbase, alleging the exchange allowed the trading of tokens that should have been registered as securities. Last month, a separate federal judge temporarily paused the SEC’s case to allow Coinbase to seek clarification from the 2nd Circuit on whether digital token trades fall under the definition of investment contracts.
