U.S. District Judge Paul Engelmayer said customers who transacted on the Coinbase and Coinbase Pro trading platforms could not show that the company sold or held title to the 79 tokens
A U.S. judge on Wednesday turned down a proposed class action lawsuit by Coinbase Global Inc customers which accused the crypto exchange of selling unregistered securities and failing to register as a broker-dealer.
U.S. District Judge Paul Engelmayer said customers who transacted on the Coinbase and Coinbase Pro trading platforms could not show that the company sold or held title to the 79 tokens they traded.
Customers said that unlike platforms that match buyers and sellers, Coinbase acted as an ‘intermediary,’ which made it the ‘actual seller’ of the tokens.
Customers said the setup permitted Coinbase to collect transaction fees, while avoiding disclosure rules meant to protect investors in traditional securities.
The judge said that in spite of having allegedly promoted tokens by describing their ‘purported value proposition’ and engaging in ‘airdrops’ of free tokens to raise trading volume, Coinbase had no direct role in the transactions.
These activities of an exchange are of a piece with the marketing efforts, materials and services that courts have held insufficient’ to qualify defendants as sellers, the judge wrote.
Engelmayer turned down federal securities law claims with prejudice, which means they cannot be brought again.
Binance customers are appealing another judge’s dismissal of a similar lawsuit last March.
Scrutiny of the crypto industry has grown in the last year as crypto currency prices dipped and several big names in the crypto industry such as Sam Bankman-Fried’s FTX exchange and the hedge fund Three Arrows Capital went bankrupt.
Last month, the U.S. Securities and Exchange Commission (SEC) charged the now-bankrupt lender Genesis Global Capital and the exchange Gemini Trust, run by Cameron and Tyler Winklevoss, with selling unregistered securities.
Coinbase said it has received Securities and Exchange Commission investigative subpoenas and information requests regarding its customer programs, including its processes for listing assets.
The dismissed lawsuit sought to block Coinbase from trading tokens without registering as a securities exchange or broker-dealer, and obtain damages for losses and transaction fees.
