The logo of Coinbase Global Inc, the largest cryptocurrency exchange in the United States, is displayed on the Nasdaq MarketSite jumbotron and others in Times Square in New York, the United States, on April 14, 2021.

Shannon Stapleton | Reuters

Coinbase secured a rare legal victory in the crypto industry this week when a Manhattan federal judge dismissed a class-action lawsuit alleging the exchange violated the Securities and Exchange Act and failed to register as a New York state broker-dealer.

Shares of Coinbase rallied overnight and were up nearly 12% Thursday morning.

The plaintiffs argued that Coinbase owned the crypto-assets it later sold directly to end users, and that Coinbase’s ownership meant it “held title” to those tokens. But in a 27-page opinion, U.S. District Judge Paul Engelmeier noted the plaintiffs’ conflicting claims and pointed to Coinbase’s user agreement, which stated that users do not buy or sell digital currency on the exchange, and that “at any time” the title in the user’s currency , which remains with the user.

A judge dismissed the federal lawsuits Wednesday with prejudice. Citing the dismissal of another class-action lawsuit against Binance, Engelmeier wrote that the class-action complaints failed to establish Coinbase’s status as a “direct seller” or title holder.

The plaintiffs also alleged that Coinbase’s marketing demonstrated an effort to sell securities. Engelmeier rejected this argument.

The lawsuit was filed in October 2021 and implicated Coinbase CEO Brian Armstrong as the primary “controlling person” at the exchange.

The company declined to comment on the ruling. It comes as Securities and Exchange Commission Chairman Gary Gensler aggressively pursues actions in the crypto space, claiming in part that they constitute securities offerings.

Earlier this year, Gensler announced a joint enforcement action against crypto exchange Gemini and now-bankrupt crypto lender Genesis Trading. At the time, Gensler said the charges “made it clear to the market and the investing public that crypto-lending platforms and other intermediaries must comply with our time-tested securities laws.”

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