Coinbase Faces Renewed Legal Trouble as Judge Reinstates Lawsuit Accusing It of Selling Unregistered Securities

Coinbase has consistently denied wrongdoing, arguing that the tokens listed on its platform are not securities and that the lawsuit lacks merit.

Coinbase faces continued legal challenges as a federal judge has denied the crypto exchange’s latest attempt to dismiss a class action lawsuit.

The lawsuit, filed in 2021, accuses Coinbase of offering and selling digital assets that should have been registered as securities under US law without doing so.

The plaintiffs allege that Coinbase acted as an unregistered broker and failed to disclose the risks associated with these tokens, rendering the sales illegal.

According to the lawsuit, Coinbase “stands between the buyer and seller in each trade on its platform, making it the actual seller of the unregistered securities that transact each day on its platform.”

The case was initially dismissed in 2023, with the court ruling that the plaintiffs failed to sufficiently allege that Coinbase was a statutory seller.

However, in April 2024, the Second Circuit reinstated the claims, allowing investors to proceed with their lawsuit under federal and state securities laws.

On February 7, Judge Paul Engelmayer rejected Coinbase’s latest motion for judgment on the pleadings, signaling that the statutory seller question must be resolved through discovery.

Coinbase has consistently denied any wrongdoing, arguing that the tokens listed on its platform are not securities and that the lawsuit lacks merit.

Meanwhile, the company is planning a major overhaul of its token listing process.

Coinbase CEO Brian Armstrong recently suggested that the exchange may shift to a user-driven approach, where customers decide which tokens are scams and which have real potential.

This move would eliminate Coinbase’s listing barriers and reduce its role as a gatekeeper in the crypto market.

It could also work in the exchange’s favor to weaken arguments that it is directly responsible for unregistered securities sales.

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Kyle Baird is DL News’ Weekend Editor. Got a tip? Email at kbaird@dlnews.com.