In a significant legal development, the US Court of Appeals for the Second Circuit has issued a sweeping ruling on a controversial lawsuit involving cryptocurrency exchange Coinbase. The plaintiffs in the case are plaintiffs Louis Oberlander, Christopher Underwood, and Henry Rodriguez. The lawsuit centered on allegations of violations of federal and state securities laws regarding the trading of specific cryptocurrencies on Coinbase.
Court rules in favor of Coinbase amid lawsuit
Plaintiffs assert federal claims under Sections 5, 12(a)(1), and 15 of the Securities Exchange Act of 1933, as well as Sections 5, 15(a)(1), 20(a), and 29(b) of the Securities Act of 1934. In addition In addition, they brought state law claims under the securities laws of California, Florida, and New Jersey. These claims are made on behalf of a national class made up of individuals.
The people affected include those who bought or sold tokens on the Coinbase platforms between October 8, 2019, and the filing of the amended complaint on March 11, 2022. The crux of the dispute is to determine whether cryptocurrencies traded on the Coinbase platform constitute securities under federal and state laws. the states. Prosecutors asserted that Coinbase's actions amounted to the offer and sale of unregistered securities. Moreover, they accused it of violating various provisions of securities laws.
In contrast, Coinbase claimed that secondary sales of crypto assets are not considered securities transactions. Hence, the stock exchange doubted the applicability of securities regulations. The Court of Appeal ruling addressed multiple aspects of the case. Moreover, the Second Circuit ultimately reversed certain portions of the trial court's ruling while affirming other portions.
Notably, the court held that Coinbase could be held liable under Section 12(a)(1) of the Securities Act for the offer and sale of unregistered securities. However, it dismissed the plaintiffs' claims under the Securities Exchange Act, citing insufficient evidence of the contracts for the transactions required to be set aside under Section 29.
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The point of view of plaintiffs and defendants
A pivotal consideration in the court's decision was the interpretation of Coinbase's user agreements, which have been subject to revision over time. The disparate language in different versions of the User Agreement complicated identifying the ownership and privacy issues critical to the case. The court stressed the need to clarify which version of the user agreement applies to the plaintiffs’ claims. He highlighted the contradictions that hindered reaching a final solution.
From the plaintiffs' perspective, the ruling represents progress in holding cryptocurrency platforms accountable under securities laws. Additionally, they urged investor protection in the dynamic cryptocurrency landscape. Conversely, Coinbase maintains that the decision confirms its position that secondary sales of cryptocurrencies do not constitute securities transactions.
Additionally, Coinbase emphasized the importance of regulatory certainty for industry innovation. The Court of Appeal decision has major implications for the regulation of cryptocurrencies and digital assets.
Furthermore, Paul Grewal, CLO Manager at Coinbase, highlighted the court’s decision as something to be appreciated. He took to X and wrote: “We appreciate that the Second Circuit today affirmed what is clear under federal securities law: there is no special liability for secondary trading of digital assets on exchanges like Coinbase. Why? Because contracts matter.”
Read also: Analyst raises price target for Coinbase (COIN), here's why
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