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A trio of aggrieved Coinbase users have brought a lawsuit against the crypto exchange over an alleged violation of state and federal laws.
Leading crypto exchange Coinbase (NASDAQ: COIN) is currently facing a lawsuit over its decision to list 79 unlicensed crypto assets. The class-action suit brought against the crypto exchange by three of its users is seeking $5 million over the unregulated securities sales. According to the plaintiffs, Coinbase is selling the securities in violation of state and federal laws. In addition, the aggrieved buyers also stated that they were not warned of the risks involved. Among the unlicensed securities sales were Solana (SOL), Cardano (ADA), and meme coin Dogecoin (DOGE).
Further Details of the Coinbase Lawsuit
The plaintiffs, Christopher Underwood, Louis Oberlander, and Henry Rodriguez, filed the proposed class action on March 11th in the Southern District Court of New York. The trio, represented by Connecticut law firm Silver Golub & Teitell, filed the 255-page amended complaint naming a trio of Coinbase entities as defendants. These include Coinbase Global, Coinbase and chief executive officer Brian Armstrong. In addition to seeking monetary compensation for damages incurred while trading the digital assets, the plaintiffs are also petitioning for Coinbase to stop selling the tokens. Furthermore, the aggrieved users also suggest that the crypto exchange should register with the securities and exchange commission (SEC). This is so that Coinbase would be subject to regulatory and reporting obligations, just like stock exchanges. The lawsuit also suggested that many more crypto exchanges also offer unlicensed securities.
Legal Counsel Touches on Crypto Regulatory Gray Area
Weighing in on the development, Philip Moustakis, counsel at Seward & Kissel, said:
“The case is not much of a surprise. After all, the SEC has signaled that it intends to pursue investigations or actions against crypto-exchanges.”
Moustakis further stated that the Commission has been cracking down on initial coin offerings since 2018. For instance, the SEC has a current dispute with remittance network Ripple, and market participant BlockFi. However, the regulatory agency is yet to take action against a crypto exchange.
Moustakis also touched on the current laborious means for examining digital currencies to ascertain what category they belong to. He explained that this is further proof of the need for more holistic regulatory clarity. As Moustakis put it:
“Unless and until the SEC provides further guidance and a path to compliance for token issuers, crypto lending products, exchanges, and other market participants, the question of whether any particular crypto asset or transaction is a security will be litigated one at a time.”
Moustakis concluded that determining whether a token is a security goes beyond already established parameters. The further analysis depends on facts and circumstances, and various conditions put more factors in perspective than others. As a result, “it can yield different outcomes depending on one’s point of view.”