Not Your Keys…Still Your Crypto?

Underwood v. Coinbase Global, Inc., et al., a closely-followed putative class action in the Southern District of New York, alleges that Coinbase, a secure online platform for buying, selling, transferring, and storing cryptocurrency, is in violation of the securities laws for selling 79 securities on its platform despite not being registered as an exchange or broker-dealer.

• Coinbase recently filed a Motion to Dismiss that has significant potential implications for the statutory seller defense in the crypto context.
• In its motion, the company argues that it is not a statutory seller and therefore lacks privity with its customers, absolving it of all liability under the Securities Act and Exchange Act.
• The basis for Coinbase’s motion is contained in its user agreement, which specifically states that when users buy or sell assets on the Coinbase site, they are not buying or selling them "from Coinbase."
• The case presents an interesting question in the context of suits against crypto exchanges: can statutory seller liability be extinguished by a user agreement saying that customers are not transacting with the exchange, even though the exchange maintains the keys and controls the crypto at all times until it is transferred to the customer?

In this client alert, Doug Pepe analyzes the arguments in Coinbase’s recent Motion to Dismiss in Underwood v. Coinbase Global, Inc., et al., explores the key questions they raise, and offers insight into the potential implications for the statutory seller defense in the crypto context.