Judge Rules Coinbase Must Face Lawsuit Over Unregistered Securities Sales

It has sparked debate on crypto regulations and asset classification in the U.S.

A federal judge has ruled that Coinbase must face a lawsuit filed by customers, over claims that the exchange sold unregistered securities. The decision comes amid a broader legal battle over the classification of crypto assets in the U.S.

The lawsuit, filed in 2018, accuses Coinbase of selling securities illegally without registering as a broker-dealer. The customers allege that Coinbase sold them 79 tokens that were unregistered with the SEC.

Coinbase has maintained that it did not pass ownership of the tokens, and that the customers were engaged in direct trades on the exchange. However, the court ruled that this argument was not valid under federal securities law.

“The Court finds that Plaintiffs have plausibly alleged that Coinbase acted as a seller of the Tokens,” the judge wrote in his decision. “Coinbase was in the business of selling Tokens, and it sold Tokens to Plaintiffs.”

The court also sustained all state laws brought forward by customers filing complaints in California, Florida, and New Jersey. According to the court, the customers established sufficient grounds to prove Coinbase provided selling services to them under these state laws.

Coinbase denies the claims and says it does not sell securities on its exchange. The company said in a statement that it is confident it will prevail in the lawsuit.

“Coinbase does not list, offer, or sell securities on its exchange,” the statement said. “We are pleased that the Court agreed and dismissed several of Plaintiffs’ claims. We look forward to continuing to demonstrate our legal defenses in district court.”

Coinbase faces several other lawsuits over the sale of unregistered securities. In June 2023, the SEC filed a lawsuit against Coinbase, alleging that the exchange operated an unregistered securities platform and failed to register as a broker.

Coinbase filed a petition with a U.S. appeals court in January 2024, seeking a ruling that crypto trades are not considered securities transactions. The exchange argues that digital trade transactions should be classified as asset sales, rather than securities exchanges.

The outcome of these legal battles could significantly impact the future regulation of crypto assets in the United States.