A federal district court recently dismissed with prejudice a putative class action against the cryptocurrency exchange Coinbase, where the plaintiffs sought to hold the exchange liable for the sale of unregistered securities on behalf a nationwide class.  The court held that Coinbase neither directly sold the accused tokens to plaintiffs nor actively solicited their sale, and thus plaintiffs’ federal claims must be dismissed.  This decision has important implications for digital asset exchanges, which have faced a significant increase in class actions alleging the exchanges are themselves liable for the sale of unregistered securities.

The plaintiffs in Underwood et al v. Coinbase, 1:21-cv-08353 D.I. 71, 2023 WL 1431965, sought to hold the cryptocurrency exchange liable for selling 79 crypto tokens that plaintiffs alleged were unregistered securities.  Under the Securities Act, a defendant violates section 5(a) and (c) if they sell unregistered securities via interstate commerce, and it is a strict liability offense.  For the purposes of the motion to dismiss, the Court assumed that the accused crypto tokens were in fact unregistered securities being traded on the Coinbase exchange.  The question instead was whether Coinbase qualified as a “statutory seller” under Pinter v. Dahl, 486 U.S. 622, 642, 647 (1988), which required plaintiffs to allege facts that (i) the defendant either passed title or other interest in the unregistered security to the buyer for value, or (ii) successfully solicited the purchase.  The Court found that Coinbase did not fit under either prong.

Under Pinter’s first prong, the amended complaint alleged that Coinbase places all assets in a centralized wallet and conducts trades between users without updating the blockchain ledger, and instead just credits or debits customer accounts, and therefore Coinbase—not the users making the token trades—was the true selling party transferring title.  However, the plaintiffs’ original complaint specifically alleged that users could directly transact with each other to exchange tokens via the Coinbase platform, and the Coinbase User Agreement contradicted the allegation that Coinbase possessed title to deposited tokens. 

Under Pinter’s second prong, the court noted that “the Supreme Court narrowly construed ‘solicitation’” and that “collateral” participation was not sufficient.  Even though Coinbase hosted, wrote blog posts about, and supported free “airdrops” of the accused tokens, the Court held that none of this exceeded the marketing efforts exempted under Pinter.  The ruling should aid cryptocurrencies defending against other class actions attempting to hold them liable for the sale of tokens alleged to qualify as securities.

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Photo of Sam Greeley Sam Greeley

Samuel Greeley is an associate in the firm’s Washington, D.C. office representing clients in complex civil litigation and government investigations. Sam’s practice focuses on a broad range of high-stakes issues facing companies in the tech sector, including class actions, antitrust investigations and litigation…

Samuel Greeley is an associate in the firm’s Washington, D.C. office representing clients in complex civil litigation and government investigations. Sam’s practice focuses on a broad range of high-stakes issues facing companies in the tech sector, including class actions, antitrust investigations and litigation, and federal agency enforcement matters. This includes advising clients on issues relating to cryptocurrency and digital assets, and how they can stay ahead of the quickly evolving enforcement and litigation landscape. He has also defended clients from class actions and white collar investigations in other industries, including life sciences and healthcare.

Photo of Andrew Soukup Andrew Soukup

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which…

Andrew Soukup has a wide-ranging complex litigation practice representing highly regulated businesses in class actions and other high-stakes disputes. He has built a successful record of defending clients from consumer protection claims asserted in class-action lawsuits and other multistate proceedings, many of which were defeated through dispositive pre-trial motions.
Andrew is co-chair of the firm’s Class Action Litigation practice group.

Andrew has helped his clients achieve successful outcomes at all stages of litigation, including through trial and appeal. He has helped his clients prevail in litigation against putative class representatives, government agencies, and commercial entities. Representative victories include:

  • Delivered wins in multiple nationwide class actions on behalf of large financial companies related to fees, disclosures, and other banking practices, including the successful defense of numerous lenders accused of violating the Paycheck Protection Program’s implementing laws, which contributed to Covington’s recent recognition as a “Class Action Group Of The Year.”
  • Successfully defending several of the nation’s leading financial institutions in a wide variety of litigation and arbitration proceedings involving alleged violations of RICO, FCRA, TILA, TCPA, FCBA, ECOA, EFTA, FACTA, and state consumer protection and unfair and deceptive acts or practices statutes, as well as claims involving breach of contract, fraud, unjust enrichment, and other torts.
  • Successfully defended several of the nation’s leading companies and brands from claims that they deceptively marketed their products, including claims brought under state consumer protection and unfair deceptive acts or practices statutes.
  • Obtained favorable outcomes for numerous clients in commercial disputes raising contract, fraud, and other business tort claims.

Because many of Andrew’s clients are subject to extensive federal regulation and oversight, Andrew has significant experience successfully invoking federal preemption to defeat litigation.

Andrew also advises clients on their arbitration agreements. He has successfully helped numerous clients avoid multi-district class-action litigation by successfully enforcing the institutions’ arbitration agreements.

Clients praise Andrew for his personal attention to their matters, his responsiveness, and his creative strategies. Based on his “big wins in his class action practice,” Law360 named Mr. Soukup a “Class Action Rising Star.

Prior to practicing law, Andrew worked as a journalist.

Photo of Ashley Simonsen Ashley Simonsen

Ashley Simonsen is a litigator whose practice focuses on defending complex class actions in state and federal courts across the country, with substantive experience in the three hotbeds of class action litigation: New York, San Francisco, and Los Angeles.

Ashley represents clients in…

Ashley Simonsen is a litigator whose practice focuses on defending complex class actions in state and federal courts across the country, with substantive experience in the three hotbeds of class action litigation: New York, San Francisco, and Los Angeles.

Ashley represents clients in the technology, consumer brands, financial services, and sports industries through all stages of litigation, including trial, with a strong track record of success on early dispositive motions. Her practice encompasses advertising, antitrust, product defect, and consumer protection matters. Ashley regularly advises companies on arbitration clauses in consumer agreements and related issues, including mass arbitration risks and issues arising under McGill v. Citibank, N.A. And she is one of the nation’s leading experts on “true lender” issues and the related “valid when made” doctrine.