A U.S. federal judge has ruled that Coinbase, the largest cryptocurrency exchange in the U.S., must face a lawsuit from customers who claim the platform illegally sold securities without proper registration.

U.S. District Judge Paul Engelmayer in Manhattan rejected Coinbase’s argument that it did not qualify as a “statutory seller” under federal securities law. The lawsuit alleges that Coinbase acted as a direct seller of 79 tokens, a claim the judge found substantial enough to proceed.

The court also upheld claims under the consumer protection laws of California, Florida, and New Jersey, reinforcing the argument that Coinbase facilitated the direct sale of tokens.

Coinbase Responds as Legal Battle Continues

In response, Coinbase reiterated that it does not list or sell securities and remains confident in defending itself against the allegations. Meanwhile, the U.S. Securities and Exchange Commission (SEC) has also filed a separate lawsuit against Coinbase, accusing the platform of allowing unregistered securities trading.

Friday’s ruling follows a previous dismissal of the lawsuit in February 2023, which was later partially reinstated by the 2nd U.S. Circuit Court of Appeals. With this latest decision, affected customers will now have the opportunity to seek damages in court.

Coinbase has also requested the appeals court to clarify whether digital tokens should be classified as securities under a 1946 Supreme Court precedent. The company argues that a definitive ruling could provide regulatory clarity for the broader cryptocurrency market.

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