David Pokima
Cryptocurrency exchange Coinbase faces more legal blows as a United States court reverses a previous ruling on a consumer’s securities lawsuit. Court documents show the 2nd US Circuit Court of Appeals has overturned the District Court ruling that struck out the case of the plaintiffs.
In 2021, Coinbase was slapped with a class action suit with users alleging the exchange facilitated the sale of unregistered securities amongst others. According to the recent ruling, the District Court should not have relied on a particular user agreement made in 2022 because Coinbase had updated the language used from earlier releases.
“In light of the varying language in different versions of the user agreement in effect during the class period, the district court could not treat the December 2021 version as conclusive for purposes of evaluating the legal sufficiency of the amended complaint.”
Coinbase Class Action Suit
Judge Paul Engelmayer relied on the user agreement and found discrepancies in the claims and the document leading to the decision to strike out the action. In the 2022 decision, the court stressed the disparity between user agreements and claims that Coinbase held little legal rights to digital assets.
The plaintiffs argued that Coinbase held title in the flagged crypto assets and facilitated their sale. They went further asserting that transactions involving 78 crypto assets are illegal contracts because of lack of registration. The class action suit included a request for damages because Coinbase gave users a description of assets as well as their value and gave frequent updates about the assets.
Court Affirms Position on Secondary Trading
The recent decision wasn’t all against Coinbase as the court affirmed the previous decision preventing the plaintiffs from rescinding contracts they claimed were against the Securities and Exchange Act.
Reacting to the developments, Coinbase Chief Legal Officer Paul Grewal wrote on X (formerly Twitter) that the law on secondary trading has again been confirmed.
“We appreciate the Second Circuit confirming today what is clear under the federal securities law: there’s no private liability for the secondary trading of digital assets on exchanges like Coinbase. Why? Because contracts matter.”
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