Even assuming the tokens are securities, the suit didn’t hold water.
A proposed class action suit against cryptocurrency exchange Coinbase, Coinbase Global and CEO Brian Armstrong alleging unregistered securities sales was dismissed in the United States District Court of Southern New York on Feb. 1. The suit, filed on March 11, claimed that 79 of the tokens listed on Coinbase were securities being sold without proper registration and customers were not warned of their risks.
The judge assumed the tokens are indeed securities in his analysis and did not consider claims based on Howey further. He stated that the Coinbase user agreement contradicts the plaintiffs’ claim that Coinbase was the “actual seller” of the tokens. Furthermore, Coinbase did not solicit sales under a strict legal definition. Thus, claims under the Securities Act were dismissed.
The judge stated that the claim under the Exchange Act alleged the presence of a contract involving a prohibited transaction. He dismissed that claim by noting that only the user agreement was liable to that claim, and it “did not necessitate illegal acts.” The judge cited case law throughout the analysis.
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