Coinbase has successfully dismissed a class action lawsuit that was filed the previous year. The claims were rejected based on the Securities and Exchange Act by District Court for the Southern District of New York. However, the court did not consider the question of whether or not the 79 tokens in dispute were securities.
In his decision, Judge Paul Engelmayer examined the previously established Howey arguments of the plaintiff, saying:
"Should a summary decision be rendered in this case, this dispute would emerge as the key battleground,"
The claims that Coinbase and its CEO Brian Armstrong were selling unregistered securities have been partially resolved due to the dismissal of the class action lawsuit brought against Coinbase.
According to the complaint submitted against Coinbase in March of 2018, the company sold 79 listed coins without properly registering them. In addition, authorities at the time stated that the significant exchange did not notify buyers of the inherent dangers associated with the assets.
The Dismissal of the Coinbase Class Action
Even though the plaintiff argued for each token separately, the court proceeded with his examination on the assumption that the tokens were securities. As a direct consequence, he should have given more consideration to arguments founded on Howey.
Instead, the judge presiding over the case stated that the plaintiffs' argument that Coinbase sold such tokens is inconsistent with the user agreement for the platform. In addition, the court rejected the plaintiffs' claims under the Securities Act because Coinbase did not engage in "soliciting sales," as the law defines that term.
In addition, the judge concluded that the Exchange Act claim asserted the existence of a contract, including an illegal transaction. As a result, he refuted it by reminding us that the assertion applied to the user agreement alone, which was a compelling argument.
In the judgment of Judge Engelmayer, this claim did not require the commission of any unlawful activities. The judge from the district court in New York mentioned various cases during the discussion.
More Urgent Requirements for Crypto currency Regulations
Legal experts offered the commentary in response to the filing of the class action lawsuit against Coinbase in the previous year by three persons who had purchased crypto currency through the exchange.
For example, Philip Moustakis, attorney at Seward & Kissel, characterized the case as expected. According to Moustakis, even the Securities and Exchange Commission (SEC) has taken a hard-line posture about crypto currency.
However, Moustakis also mentioned the rigorous assessment of each token individually as a requirement for more clarity regarding the regulations. In his own words:
"The issue of whether a specific crypto asset or payment is a security will be challenged in court one at a time until SEC provides any more advice and a route to fully comply for token issuers, crypto loaning items, exchanges, and other key stakeholders," unless and until the SEC provides such further guidelines and a path to compliance.
"While tests to decide whether a token is a security [...] are well set up," continued Moustakis, "the analysis relies on available facts, and various assessors consider specific variables more than others," which means that it can produce different results based on one's point of view.
In August of last year, Coinbase defended itself against a class action lawsuit concerning the protection of user wallets and user lockouts.