Coinbase beats much of customer lawsuit over US token sales

Coinbase has secured a significant victory in a lawsuit where customers accused the cryptocurrency exchange of illegally selling unregistered securities. U.S. District Judge Paul Engelmayer in Manhattan dismissed the majority of claims concerning "matched" transactions, which constituted nearly all of Coinbase's trading volume.

The lawsuit, filed by customers, alleged that over 60 tokens, including popular ones like XRP and dogecoin, were unregistered securities. They sought unspecified damages in the proposed class action. Judge Engelmayer's ruling on Thursday found that Coinbase did not qualify as a statutory seller for matched transactions, where the exchange simply paired buy and sell orders without taking ownership of the tokens.

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However, the judge ruled that customers can pursue claims related to "inventory" transactions. In these instances, Coinbase fills customer orders using tokens from its own holdings. These transactions, accounting for at least $178 million in sales, involve Coinbase acting as a dealer and underwriter by passing title of tokens to buyers. This aspect of the lawsuit will continue.

This legal battle touches upon the evolving regulatory landscape for cryptocurrencies. Coinbase, like other industry players, has faced increased scrutiny. The lawsuit's outcome hinges on the interpretation of the federal Securities Act of 1933 and state "blue sky" laws. The Digital Chamber, a cryptocurrency trade group, supported Coinbase, warning that an overly broad definition of a statutory seller could hinder innovation and push trading volume overseas. The U.S. Securities and Exchange Commission had previously ended its own lawsuit against Coinbase in 2023, which also alleged the trading of unregistered securities.

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