U.S. District Judge Paul Engelmayer in the Southern District of New York ruled that cryptocurrency exchange Coinbase must face a class action suit that he had dismissed earlier. The case was partially reopened on appeal and accuses the cryptocurrency exchange of selling securities.

The case originated with three Coinbase users, Louis Oberlander, Henry Rodriguez and Christopher Underwood. They sued the exchange in March 2022 and alleged that 79 of the tokens Coinbase lists were securities, making Coinbase guilty of unregistered securities sales.

The suit keeps coming back

The suit required Coinbase to register as a national securities exchange and to pay damages. Judge Engelmayer dismissed the case in February 2023. The judge did not comment on the status of the 79 tokens, but rejected the plaintiffs’ arguments based on securities law.

However, an appeals court found that Engelmayer’s decision relied on an invalid user agreement. The appeals court upheld the dismissal of the claims based on securities, but sent the case back to Engelmayer to be retried.

Coinbase tried to have the revived case dismissed, saying it was not the “statutory seller” of the tokens as defined by federal law. “Sellers are matched in Coinbase’s blind bid-ask system with buyers who want to exchange another digital asset or other currency,” Coinbase argued.

Engelmayer rejected that argument. According to him, “Customers on Coinbase transact solely with Coinbase itself.” Coinbase responded with a statement saying, “Coinbase does not list, offer, or sell securities on its exchange. We look forward to vindicating the remaining claims in the district court.”

The SEC has a suit for Coinbase too

The United States Securities and Exchange Commission filed a similar suit against Coinbase in June 2023, calling it “an unregistered national securities exchange, broker, and clearing agency.” In January, the court granted Coinbase an interlocutory appeal, allowing it to argue before the appeals court for the dismissal of the case.

One of the issues that will be decided in the appeal is whether or not an investment contract must involve an actual contract. The SEC’s case crucially depends on the claim that it is not necessary to have an actual contract to form an investment contract.

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