U.S. Court Rules Coinbase's Secondary Cryptocurrency Sales Don't Violate Securities Exchange Act
Summary:
The U.S. Court of Appeals for the Second Circuit has ruled that secondary sales of cryptocurrencies on Coinbase, a major cryptocurrency exchange, do not violate the Securities Exchange Act. The ruling impacts a nationwide group that traded tokens on Coinbase from October 2019 to March 2022. Coinbase argued that secondary cryptocurrency sales did not meet securities transaction criteria, a viewpoint affirmed by the court. The verdict is seen as a step towards more stringent regulation of crypto platforms under securities laws, with Coinbase emphasizing the importance of regulatory clarity in fostering industry innovation.
In a notable legal victory for Coinbase, a premier cryptocurrency exchange, the U.S. Court of Appeals for the Second Circuit has ruled that secondary sales of cryptocurrencies on the platform don't violate the Securities Exchange Act. This judgment has implications for a group of traders who engaged in token transactions on Coinbase from October 8, 2019, to March 11, 2022. The litigation primarily revolved around whether the cryptocurrencies traded on Coinbase were classified as securities.
The litigants brought federal claims under Sections 5, 12(a)(1), and 15 of the Securities Act of 1933, in addition to Sections 5, 15(a)(1), 20(a), and 29(b) of the Securities Exchange Act of 1934. They also invoked state laws related to securities in California, Florida, and New Jersey, aiming to defend individuals of a national class.
The litigants argued that Coinbase had been dealing in unregistered securities, claiming it violated a variety of securities laws. Coinbase, on the other hand, argued that secondary cryptocurrency transactions didn't conform to the standard of securities transactions, questioning the pertinence of these laws. After examining multiple aspects, the Court of Appeals overruled some of the lower court's findings while maintaining others.
The court recognized potential liability for Coinbase under Section 12(a)(1) of the Securities Act for selling unregistered securities. However, it dismissed the claimants’ allegations under the Securities Exchange Act due to the lack of substantial evidence of specific contracts necessary for rescission under Section 29.
The interpretation of Coinbase’s user contracts, which have changed over time, played a significant role in the court's decision. The varying wording in different versions of the contracts led to confusion on key issues in the case. Consequently, the court emphasized the necessity of determining the applicable version of the user agreement.
The plaintiffs see the decision as progress in regulating crypto platforms under securities laws, pushing for more investor safeguards in the evolving world of cryptocurrencies. In contrast, Coinbase interprets the ruling as validation of its stance that secondary cryptocurrency transactions do not classify as securities transactions.
Coinbase also stressed the importance of coherent regulatory rules to nurture innovation within the sector. The verdict of the Court of Appeals holds considerable influence on how cryptocurrencies and digital assets will be regulated in the future.
In addition, Coinbase's Chief Legal Officer, Paul Grewal, applauded the ruling on social platform X. He emphasized that the Second Circuit has reaffirmed that secondary trading of digital assets on exchanges like Coinbase are not liable under federal securities law, underlining the critical role of contracts.
Published At
4/6/2024 4:46:32 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.