The interpretation of Coinbase’s user agreements, which changed over time, was a major factor in the court’s judgement.
A prominent cryptocurrency exchange, Coinbase, has won a major case that has been going on for a while. Cryptocurrency secondary sales on Coinbase’s platform are not in violation of the Securities Exchange Act, according to a ruling by the U.S. Court of Appeals for the Second Circuit, which sided with Coinbase.
For a countrywide group of individuals, the court’s ruling impacts token traders on Coinbase from March 11, 2022, until October 8, 2019. The fundamental question that Coinbase’s traded cryptocurrencies had to address was whether they qualified as securities.
The plaintiffs brought federal claims under the Securities Act of 1933, Sections 5, 12(a)(1), and 15, as well as the Securities Exchange Act of 1934, Sections 5, 15(a)(1), 20(a), and 29(b). Additionally, on behalf of a national class of persons, they brought claims pertaining to securities laws in the states of California, Florida, and New Jersey.
Claiming that Coinbase was engaging in the offering and sale of unregistered securities, the plaintiffs put their case forward. Not only that, but they said it broke many securities regulations.
Coinbase, on the other hand, disputed the applicability of securities laws and said that secondary sales of crypto assets did not constitute securities transactions. The Court of Appeals considered several factors before affirming certain lower court rulings and reversing others.
Because Coinbase sold unregistered securities, the court found that the company could be liable under the Securities Act’s Section 12(a)(1). Nonetheless, it denied the plaintiffs’ requests for rescindment under Section 29 of the Securities Exchange Act due to a lack of evidence about the particular contracts involved in the transactions.
The interpretation of Coinbase’s user agreements, which changed over time, was a major factor in the court’s judgement. Language differences between versions exacerbated case-critical concerns with privity and title. Discrepancies prevented a final conclusion; hence, it was important that the relevant user agreement version be clearly defined.
The plaintiffs are fighting for investor protection in the ever-changing crypto environment and see the verdict as a step in the right direction towards holding crypto platforms responsible under securities regulations. Coinbase, on the other hand, claims the ruling further supports its stance that secondary cryptocurrency sales do not constitute securities transactions.
Additionally, Coinbase emphasized the need for clear regulations to encourage innovation in the market. The decision of the Court of Appeals will significantly impact the regulation of digital assets and cryptocurrencies.
Paul Grewal, Coinbase’s chief legal officer, took to X social media to express his thanks for the Second Circuit’s affirmation, under federal securities law, that exchanges like Coinbase are immune from private liability for the secondary trading of digital currencies. He emphasized the importance of contracts in this regard.
Wallets