In a significant legal development, the US Court of Appeals for the Second Circuit has issued a comprehensive ruling on a contentious lawsuit involving crypto 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 concerning the trading of specific cryptocurrencies on Coinbase.

Court Rules In Favor Of Coinbase Amid The Lawsuit

The plaintiffs asserted federal claims under Sections 5, 12(a)(1), and 15 of the Securities Act of 1933, as well as Sections 5, 15(a)(1), 20(a), and 29(b) of the Securities Exchange Act of 1934. Additionally, they brought forth state law claims under the securities laws of California, Florida, and New Jersey. These claims were filed on behalf of a nationwide class consisting of individuals.

The affected people include those who bought or sold the tokens on Coinbase’s platforms between October 8, 2019, and the filing of the amended complaint on March 11, 2022. The crux of the dispute lay in determining whether the cryptocurrencies traded on Coinbase’s platform constituted securities under federal and state laws. The plaintiffs contended that Coinbase’s actions amounted to offering and selling unregistered securities. Furthermore, they accused it of violating various provisions of securities laws.

In contrast, Coinbase argued that secondary sales of crypto-assets did not qualify as securities transactions. Hence, the exchange disputed the applicability of securities regulations. The Court of Appeals’ ruling addressed multiple aspects of the case. Moreover, the Second Circuit ultimately reversed certain portions of the lower court’s judgment while affirming others.

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 transaction-specific contracts required for rescission under Section 29.

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Plaintiffs And Defendants Perspective

A pivotal consideration in the court’s decision was the interpretation of Coinbase’s user agreements, which underwent revisions over time. The varying language in different versions of the user agreement complicated the determination of title and privity issues crucial to the case. The court emphasized the need for clarity on which version of the user agreement applied to the plaintiffs’ claims. It highlighted discrepancies that hindered a definitive resolution.

From the plaintiffs’ perspective, the ruling represents progress in holding cryptocurrency platforms accountable under securities laws. In addition, they urged for investor protection in the dynamic crypto landscape. Conversely, the Coinbase exchange maintains that the decision affirms its stance that secondary sales of cryptocurrencies do not constitute securities transactions.

In addition, Coinbase emphasized the importance of regulatory certainty for industry innovation. The Court of Appeals’ decision carries significant implications for the regulation of cryptocurrencies and digital assets.

Moreover, the Coinbase CLO Paul Grewal spotlighted the court’s decision as appreciable. He took to X and wrote, “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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