Shares of cryptocurrency exchange Coinbase jumped more than 26% Thursday after a federal judge in New York dismissed a class action lawsuit against the San Fransico-based company, before settling to around 17%.
The lawsuit—first brought against Coinbase in March of last year—alleged that 79 tokens offered by the exchange were unregistered securities, were inappropriately sold directly to customers, and that it had failed to register as a broker-dealer.
It was brought on behalf of customers who sought refunds on token purchases, trading fees, and losses that they potentially incurred on the platform. U.S. District Judge Paul Engelmayer tossed out the lawsuit, however, because of the plaintiffs' failure to prove Coinbase was the "immediate seller" or "held the title" of the tokens, a recent filing states.
Another rejected component of the suit accused Coinbase of soliciting token sales by offering information about cryptocurrencies that could be purchased on its exchange, such as “descriptions of each token and its purported value proposition” as well as links to news articles about the coins.
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The cryptocurrency exchange’s stock price has rallied recently alongside the price of other tokens such as Bitcoin and Ethereum, more than doubling since the trading year began to over $82 per share from $33.60–a gain of 145% in just over a month.
But shares in Coinbase still remain roughly 76% down from their all-time high of $357.39 set in November of 2021.
The court order delivered Wednesday references elements of Coinbase’s user agreement that “flatly contradict” allegations put forth in the lawsuit, according to Judge Engelmayer.
In terms of how transactions are handled, the user agreement plainly states that users do not deal directly with the exchange when trading on Coinbase and that Coinbase acts as the “agent” facilitating transactions between buyers and sellers.
Additionally, the user agreement tells customers that the title of ownership for digital assets remains with them and is not transferred to Coinbase at any time.
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When Judge Engelmayer dismissed federal claims brought in the lawsuit, he did so with prejudice, preventing the plaintiffs from filing the claim again in the Southern District of New York. Yet, he dismissed state claims from the lawsuit without prejudice.
Coinbase’s legal team had motioned to have the case dismissed last May. Lawyers that acted on behalf of Coinbase and the plaintiffs did not immediately respond to Decrypt’s requests for comment.
While Judge Engelmayer’s decision is good news for Coinbase, the company faces lawsuits in other states, such as New Jersey and Georgia.
The lawsuit in the Peach State represents over 100 people seeking $5 million, and it accuses the exchange of failing to secure customers’ accounts and “flouting” federal securities laws, among other allegations.
