In a significant legal development, the U.S. Court of Appeals for the Second Circuit has issued a sweeping ruling in a controversial case involving cryptocurrency exchange Coinbase. The plaintiffs in this lawsuit are Plaintiffs Louis Oberlander, Christopher Underwood, and Henry Rodriguez. The case centered on allegations of violations of federal and state securities laws regarding certain virtual currency transactions on Coinbase.
Court rules in favor of Coinbase amid litigation
Plaintiffs are charged under Sections 5, 12(a)(1), and 15 of the Securities Act of 1933, as well as Sections 5, 15(a)(1), 20(a), and 29(b). and asserted federal claims. In addition, we have brought state law claims under the securities laws of California, Florida, and New Jersey. These complaints were filed on behalf of a national group of individuals.
Those affected include those who bought and sold tokens on Coinbase's platform between October 8, 2019 and the filing of the amended complaint on March 11, 2022. At the heart of the dispute was determining whether virtual currencies traded on Coinbase's platform constitute securities. Under federal and state law. Plaintiffs alleged that Coinbase's actions amounted to an offer and sale of unregistered securities. It also accused the company of violating various securities law provisions.
In contrast, Coinbase argued that secondary sales of crypto assets do not constitute securities trading. Therefore, the exchange challenged the applicability of the securities regulations. The Court of Appeal's judgment addressed several aspects of the case. Additionally, the Second Circuit ultimately reversed certain portions of the lower court's decision and affirmed others.
Notably, the court held that Coinbase may be liable under Section 12(a)(1) of the Securities Act for the offering and sale of unregistered securities. However, the court dismissed the plaintiff's claim under the Securities and Exchange Act, finding that there was insufficient evidence of a transaction-specific contract necessary for rescission under Article 29.
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Plaintiff and Defendant's Perspectives
The most important consideration in the court's decision was the interpretation of Coinbase's user agreement, which has been revised over time. Different versions of user agreements have different language, complicating the determination of title and privacy issues important to this case. The court emphasized the need to clarify which version of the User Agreement applies to the plaintiff's claims. It highlights the contradictions that prevent a final solution.
From the plaintiffs' perspective, this decision represents progress in holding crypto platforms accountable under securities laws. Additionally, they called for investor protection in the dynamic cryptocurrency environment. On the contrary, the Coinbase exchange claims that this decision confirms its position that secondary sales of virtual currencies do not fall under securities trading.
Additionally, Coinbase emphasized the importance of regulatory certainty for innovation in the industry. The Court of Appeal’s decision has significant implications for the regulation of cryptocurrencies and digital assets.
Additionally, Coinbase CLO Paul Grewal noted that the court's decision was commendable. He told X that the Second Circuit Court today affirmed what is clear under federal securities law: there is no personal liability for secondary trading of digital assets on exchanges like Coinbase. Thank you,” he wrote. why? Because contracts are important. ”
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The published content may include the personal opinions of the author and may be subject to market conditions. Do your market research before investing in cryptocurrencies. The author or publication assumes no responsibility for your personal financial loss.
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