The proposed class-action suit, filed in federal court in New York in October 2021, seeks damages arising from the sale or soliciting of 79 digital assets that the consumers say amounted to illegal contracts because the platform is not registered with the US Securities and Exchange Commission.
Customers contended that other platforms usually matched buyers and sellers. However, Coinbase acted as an “intermediary.” Doing so made it the “actual seller” of the tokens, they claimed. The plaintiffs also added that the system in place empowered Coinbase to collect transaction fees while evading disclosure rules.
The judge ruled that the terms of the exchange’s user agreement “flatly contradict” allegations in the lawsuit. The judge also found that the platform did not actively ask for investments. Engelmayer further cleared that Coinbase did not have any direct role in the transactions, even though it allegedly advocated tokens by describing their “purported value proposition” and took part in “airdrops” to refine trading volume.
The court ruled that Coinbase had no direct involvement in the transactions, despite purportedly promoting tokens by explaining their supposed value proposition and engaging in “airdrops” to increase trade volume.
The court rejected the claims with prejudice, which means that they cannot be raised again. “These activities of an exchange are of a piece with the marketing efforts, materials and services that courts … have held insufficient” (to claim that the exchange is a seller).
Though the dismissal of the Underwood class action complaint is a success for Coinbase, the publicly-traded U.S.-based cryptocurrency exchange is currently engaged in a game of whack-a-mole with other class action claims in several jurisdictions, including Georgia and New Jersey.
The suit alleges that Coinbase promoted the sale of the tokens by providing users with descriptions and their purported value, as well as by participating in promotions, giving news updates about cryptocurrency price movements and links to web stories. But Engelmayer said those activities “are of a piece with the marketing efforts, ‘materials,’ and ‘services’” that courts have determined are not active solicitation.
A judge in the same court last April dismissed a similar lawsuit against Binance, the world’s largest crypto platform, finding that the claims were filed too late and that US securities laws didn’t apply because Binance is not a domestic exchange despite the fact that much of its infrastructure is based in the US.
