Coinbase Hit with Revived Lawsuit Amid Regulatory Surge

The 2nd US Circuit Court of Appeals has revived a lawsuit against Coinbase by customers who allege the exchange illegally sold unregistered securities and failed to register as a broker-dealer. The appeals court found that a lower court judge erred in relying on a December 2021 user agreement to dismiss the case, and that the customers' claims should be allowed to proceed. The customers also argue that they never accepted the December 2021 user agreement, making it irrelevant in deciding to dismiss their case.

Coinbase Faces Revived Lawsuit Amidst Broader Regulatory Scrutiny

In a significant blow to the largest cryptocurrency exchange in the United States, Coinbase is now facing a revived lawsuit alleging illegal sales of unregistered securities and failure to register as a broker-dealer. The lawsuit, filed by a group of Coinbase customers, was initially dismissed by a lower court judge but has been reinstated by the 2nd U.S. Circuit Court of Appeals in Manhattan.

The lawsuit alleges that Coinbase has been unlawfully operating as an unregistered broker-dealer, failing to register the 79 tokens traded on its platform as securities with the Securities and Exchange Commission (SEC). This alleged lapse in regulatory compliance has raised concerns about consumer protection and the integrity of the cryptocurrency market.

The plaintiffs argue that Coinbase's user agreement, entered into in December 2021, is not conclusive in determining whether the company is the seller or holds title to the 79 tokens involved in the lawsuit. The appeals court agreed, stating that Coinbase had materially changed its user agreements over time and that the December 2021 version could not be solely relied upon in this case.

The court's decision comes amidst heightened regulatory scrutiny of the cryptocurrency industry. The SEC has recently stepped up its enforcement efforts against cryptocurrency exchanges, alleging violations of securities laws. Coinbase itself is facing an ongoing SEC lawsuit over allegations of facilitating trades of unregistered securities.

The revived lawsuit against Coinbase underscores the importance of clear and transparent regulatory frameworks for the cryptocurrency market. As the industry continues to evolve rapidly, it is crucial for exchanges like Coinbase to adhere to established laws and regulations to ensure investor protection and preserve the integrity of the market.

The case now returns to the U.S. District Court in Manhattan, where it will be further adjudicated. The outcome of this lawsuit will have significant implications for Coinbase and the broader cryptocurrency industry, shaping the legal landscape and potentially setting precedents for future enforcement actions.

Coinbase, in response to the appeals court's decision, has maintained that it welcomes the dismissal of some claims, particularly those related to secondary trading of digital assets on exchanges. However, the company's legal battle with the plaintiffs is far from over, with the plaintiffs expressing their gratitude for the opportunity to resume their case.

As regulators continue to tighten their grip on the cryptocurrency market, Coinbase faces the daunting task of navigating a complex regulatory landscape while maintaining its dominance as the largest U.S. exchange. The outcome of this lawsuit will be closely watched by industry participants, investors, and regulators alike, as it holds the potential to reshape the future of cryptocurrency trading.