Coinbase unregistered securities legal drama might be marching on as a United States Appeal Court overturns a previous ruling.

Coinbase, a cryptocurrency exchange, is facing additional legal setbacks after a US court overturned an earlier decision over a securities complaint filed by a consumer. According to court records, the plaintiffs' complaint was dismissed by the District Court, but the 2nd US Circuit Court of Appeals reversed that decision.

Users of Coinbase claimed, among other things, that the exchange assisted in the selling of unregistered securities, and Coinbase was hit with a class action lawsuit in 2021. The new decision states that since Coinbase altered the language from previous releases, the District Court was not entitled to rely on a specific user agreement from 2022.

“In light of the varying language in different versions of the user agreement in effect during the class period, the district court could not treat the December 2021 version as conclusive for purposes of evaluating the legal sufficiency of the amended complaint.”

Judge Paul Engelmayer of the Coinbase Class Action Suit relied on the user agreement and discovered inconsistencies between the claims and the document, which led to the decision to dismiss the case. The court emphasised the discrepancy between user agreements and Coinbase's assertions that it had limited legal rights over digital assets in its 2022 ruling.

The plaintiffs contended that Coinbase authorised the sale of the crypto assets that were flagged and retained title to them. They went on to say that because there was no registration, transactions involving 78 crypto assets were illegal contracts. Due to Coinbase's provision of customers with an asset description, value estimate, and regular updates regarding the assets, a request for damages was included in the class action lawsuit.

Court Upholds Secondary Trading Position

The court upheld the earlier ruling prohibiting the plaintiffs from cancelling contracts they claimed violated the Securities and Exchange Act, so the new ruling wasn't entirely against Coinbase.

Paul Grewal, the Chief Legal Officer at Coinbase, responded to the events by writing on X, formerly Twitter, stating that the legislation pertaining to secondary trading has been validated once more.

"We are grateful that the Second Circuit has upheld the federal securities law's clear ruling that individual traders on platforms such as Coinbase are not liable for the secondary trading of digital assets. Why? Since contracts are important.