Binance’s Impleadment in a Consumer’s Lawsuit
World’s leading crypto trading platform, Coinbase, was recently impleaded in a lawsuit filed by a crypto consumer. The lawsuit was filed in March 2022 before Paul Engelmayer i.e. the Judge of the District Court of Manhattan, US.
While impleading Coinbase Global, the plaintiffs also implicated Coinbase Inc. as well as Brian Armstrong, CEO of Coinbase, as defendants.
Accusations against Coinbase in the Lawsuit
In the lawsuit, the plaintiffs accused the world’s leading crypto platform of being involved in the selling of unregistered ‘securities’.
Plaintiffs claimed that Coinbase had sold about 79 units of digital currencies while ignoring the fact that they were ‘securities’. They further accused Coinbase of failing to register itself as a securities broker/dealer.
It was therefore prayed by the plaintiff that Coinbase should be declared to be in violation of the securities laws and regulatory compliance.
They hence sought the Court’s direction to demand from Coinbase payment of damages for selling unregistered securities.
Plaintiffs further required the Court to declare that Coinbase had deliberately not registered itself with the regulator i.e. Securities & Exchange Commission (SEC).
They argued that contracts for the sale of unregistered securities executed by Coinbase should also be declared illegal and contrary to law.
Parties Arguments and Court’s Observation
The lawsuit against Coinbase was lastly coming up for hearing before Judge Engelmayer two days ago.
On the date of the hearing, the plaintiff’s counsel argued that the business model of Coinbase is different than the other similar crypto trading platforms.
The plaintiffs alleged that the firm primarily executed the sale contracts as an ‘intermediary’ instead of a crypto trade platform. They argued that by doing so Coinbase acted as if it was the ‘actual seller’ of the sold digital currencies.
They claimed that Coinbase was able to bypass ‘disclosure requirements’ as mandated under security laws. Furthermore, bypassing enabled the firm to force buyers into paying ‘transactional fees’, claimed plaintiffs.
According to the plaintiffs, disclosure requirements are meant for ensuring investors’ protection which is strictly followed in the sales of traditional securities.
However, such requirements were not fulfilled by Coinbase which eventually exposed investors to risks, argued plaintiffs’ counsel.
The ruling of the District Court
After hearing the arguments of the plaintiff’s counsel, Judge Engelmayer passed a ruling in which the Judge dismissed the suit.
The Court observed that the plaintiff’s case was not supported by evidence proving that Coinbase did sell ‘securities’ instead of ‘digital currencies’.
The Court further observed that none of the plaintiffs provided any evidence that Coinbase was the owner in possession of the sold assets.
It was the allegation of the plaintiffs that they had bought crypto tokens from Coinbase’s subsidiary namely Coinbase Pro.
They had claimed that though the sale was executed by Coinbase Pro, the assets were owned by Coinbase.
While dismissing the lawsuit, Judge Engelmayer also rejected this allegation and declared it to be unfounded. There was not enough information on the matter that the plaintiff could provide on the matter.
Furthermore, the Court also observed that Coinbase cannot be involved in a private sale transaction.
Court decided that the transaction was purely between the buyers and the seller and that the seller was Coinbase Pro and not Coinbase.
Judge Engelmayer rejected the claim that Coinbase was directly or indirectly involved in the transactions in question.
The lawsuit was ultimately dismissed with the direction that the plaintiffs failed to make out a case against the defendants.
The case was not strong from the side of the plaintiff. The claims they made as well as the proof they provided were not credible enough to put the defendants on the trial.
Therefore, the judge decided that it was better to let the matter go and announce that the case was dismissed.
With the plaintiff not being able to produce much evidence against the defendant, it was just normal for the court to reject the lawsuit.