COIN price rallies 45% after class action lawsuit against Coinbase dismissed
Editor's Note: With so much market volatility, stay on top of daily news! Get caught up in minutes with our speedy summary of today's must-read news and expert opinions. Sign up here!
(Kitco News) - It’s been a rough road for cryptocurrency exchanges in recent months as the collapse of FTX put a harsh spotlight on the industry, leading to increased scrutiny from regulators and lawsuits from members of the crypto community who are still hurting from the terrible year the market had in 2022.
Coinbase is one firm that has seen its fair share of challenges, including a class action lawsuit filed against the exchange and its CEO Brian Armstrong which alleges that the platform sold unregistered securities without proper registration and failed to warn customers of the risks of their purchases.
But in a sign that the outlook might be improving for the crypto ecosystem, the Judge on the case – which was being litigated in the United States District Court of Southern New York – dismissed the suit on Wednesday.
The lawsuit was attempting to bring charges against Coinbase under the Securities Act of 1933 and the Exchange Act of 1934 and used the Howey test, established by the U.S. Supreme Court in 1946, to identify 79 tokens that it determined to be securities. The plaintiffs argued for each token to be judged individually, and the suit was filed with national claims and claims under California, Florida and New Jersey state law.
In the decision from Judge Paul Engelmayer, the dismissal was granted because the Coinbase user agreement contradicts the plaintiffs’ claim that Coinbase was the “actual seller” of the tokens and the exchange did not solicit sales under a strict legal definition. The judge also determined that claims made by the plaintiffs in their amended complaint filed last March “added numerous allegations that directly contradicted their initial Complaint.”
For these reasons, the claims under the Securities Act were dismissed.
Judge Engelmayer also dismissed the claim filed under the Exchange Act – which alleged the presence of a contract involving prohibited transactions – noting that only the user agreement was liable to that claim, and it “did not necessitate illegal acts.”
The national claims included in the suit were dismissed with prejudice, which means the plaintiffs cannot file the same claims again. The state claims were dismissed without prejudice, with the judge ruling that the court had not “invested the resources necessary to resolve” the state claims.
As for the claims made about the Howey test, the judge said “Were this case to reach summary judgment, this contention would emerge as a central battleground.”
|Coinbase cuts staff by 20%, operating expenses by 25%|
Following the dismissal of the lawsuit, the price of Coinbase (COIN) stock surged 45% to hit a high of $85.50 on Thursday before pulling back to support near $82.
COIN 4-hour chart. Source: TradingView
While the exchange and its CEO may be relieved to have this case dismissed, they still face multiple other legal challenges, including a class action lawsuit that was filed in the Northern District Court of Georgia last August which claims the exchange did not do enough to protect user wallets and locked users out of their accounts during times of high market volatility. There’s also an ongoing lawsuit in the U.S. District Court in Delaware which alleges that the company’s leadership made “false and misleading statements” in the firm’s public filings ahead of its direct listing in April 2021.