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A federal appeals court has revived a lawsuit against Coinbase, the biggest cryptocurrency exchange in the United States, filed by customers who accuse the exchange of illegally selling unregistered securities and failing to register as a broker-dealer.
The 2nd U.S. Circuit Court of Appeals in Manhattan ruled in favor of the customers, stating that a lower court judge should not have dismissed the case based on a December 2021 user agreement.
The appeals court found that Coinbase had materially changed its user agreements over time, rendering the December 2021 version inconclusive in evaluating the customers’ legal claims.
While the appeals court revived the lawsuit, it upheld the dismissal of claims under the federal Securities Exchange Act seeking to rescind some customer transactions.
The case has been returned to U.S. District Judge Paul Engelmayer in Manhattan, who initially dismissed it in February 2023. The customers’ legal team plans to resume their case against Coinbase and its Chief Executive Brian Armstrong.
Coinbase’s chief legal officer, Paul Grewal, welcomed the dismissal of some claims, emphasizing the lack of private liability for secondary trading of digital assets on exchanges like Coinbase.
On the other hand, Jordan Goldstein, a lawyer for the customers, expressed gratitude for the decision and affirmed their intention to proceed with the case against Coinbase.
The lawsuit against Coinbase alleges that the exchange illegally sold unregistered securities and failed to register as a broker-dealer.
U.S. District Judge Katherine Polk Failla previously denied Coinbase’s bid to dismiss a Securities and Exchange Commission lawsuit claiming the exchange facilitated the trading of tokens that should have been registered as securities.
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