Coinbase's Legal Woes Mount as Judge Rejects Dismissal of Class Action Lawsuit

A federal judge in the Southern District of New York has refused to dismiss a class action lawsuit against Coinbase, the leading U.S.-based cryptocurrency exchange. The ruling, reported by Reuters, comes as a setback for Coinbase, which had argued that it did not qualify as a "statutory seller" and should not face the lawsuit alleging illegal sales of unregistered securities.

Judge Paul Engelmayer rejected Coinbase's argument, stating that the exchange had not transferred title to the 79 crypto assets traded by customers, and that customers only transacted with Coinbase itself. Engelmayer also refused to dismiss claims governed by the laws of California, New Jersey, and Florida, noting that the complainants had sufficient grounds to allege that Coinbase was the direct seller of the crypto assets.

In February 2023, Engelmayer initially dismissed the lawsuit, but an appellate court later reviewed the case and sent some parts of it back to the judge. In June 2023, Coinbase was sued by the U.S. Securities and Exchange Commission (SEC) for allegedly violating securities laws and operating as an unlicensed broker-dealer. A year later, Coinbase filed its own lawsuit against the SEC and the Federal Deposit Insurance Corporation (FDIC), claiming that the regulatory agencies were intentionally targeting the digital assets industry.

Coinbase has maintained that it does not list, offer, or sell securities on its exchange. The exchange has vowed to continue defending itself against the remaining claims in the district court.