Coinbase just scored a big one, boys.
The U.S. Court of Appeals for the Second Circuit just handed the nation’s largest cryptocurrency exchange an uncharacteristic legal win. They said, loud and clear, that Coinbase has not and is not violation any Securities Exchange Act’s laws with its secondary crypto sales.
Breaking down the ruling
Allow me to break the entire court filing down for you Barney-style.
It all started when Plaintiffs Louis Oberlander, Christopher Underwood, and Henry Rodriguez thought they had Coinbase by the balls. They brought up some heavy accusations against my boy Brian Armstrong, throwing around laws from the Securities Act of 1933 and the Securities Exchange Act of 1934.
They claimed Coinbase was playing fast and loose with these rules, selling what they strongly-believed were unregistered securities between 2019, and 2022. These guys were quite dramatic with the accusations too. They said that they were not just mad for what was done to them. They were also speaking up for a whole bunch of other Coinbase customers who traded certain cryptocurrencies, or “Tokens,” on the company’s platforms.
But it looks like they made an oopsie. Because when the court took a magnifying glass to their case, they found that Coinbase is not really the villain our seemingly bored plaintiffs made them out to be.
Trust me the Judge wasn’t buying the whole reiterated “Coinbase is selling unregistered securities” claim. Why? Because according to the big brains in robes, for Coinbase to be guilty, they needed to have either passed the title of the security directly to the buyer or must have been persuading customers to buy these securities for a personal financial gain.
And guess what, you guys? The court didn’t think Coinbase did either.
Interestingly, the district court and Coinbase did a little tweak around the latter’s December 2021 User Agreement. Now the plaintiffs argued that this piece of paper was their smoking gun, showing that yeah, Coinbase did indeed have control over these security tokens.
But the district court was not having any of it. They saw the allegations as contradicting earlier complaints and found no solid ground to stand on regarding Coinbase having direct title or soliciting sales in a way that broke the securities rules.
The legal drama continues
But there’s more!
The Exchange Act claims got the boot too. The district court wasn’t convinced by the plaintiffs’ claims that each token transaction was its own contract-breaking party.
It looked at the Coinbase User Agreement and said, “Nope, this doesn’t add up.” They pointed out that the plaintiffs’ arguments were more Swiss cheese than solid cheddar, full of holes and none of them holding up.
Yet, the Appeals Court wasn’t ready to let everything slide.
They put their foot down on how the district court handled the state law claims. Instead of kicking them to the curb under the guise of not wanting to deal with them, the Appeals Court noted that there was a legitimate reason to keep these claims in the courtroom under the Class Action Fairness Act of 2005. This means Coinbase still needs to face the music on these state law claims.
Essentially, the court was like, “Okay, Coinbase, you might have slipped up here and there, but on the big stuff, you’re clear.”
They reversed some of the district court’s decisions, kept others, and sent the whole hot mess back for another round.
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