NEW YORK, Feb 1 (Reuters) – A U.S. judge on Wednesday dismissed a class action lawsuit brought by Coinbase Global Inc. (COIN.O) clients who accused the cryptocurrency exchange of selling unregistered securities and failing to register as a stockbroker.

US District Judge Paul Engelmayer in Manhattan said customers who transacted on the Coinbase and Coinbase Pro trading platforms could not prove that the company sold or had title to the 79 tokens, a form of digital asset, that they marketed

The clients said that unlike platforms that match buyers and sellers, Coinbase acted as a “middleman”, making it the “actual seller” of the tokens.

They said the setup allowed Coinbase to charge transaction fees, while circumventing disclosure rules meant to protect investors in traditional securities.

The judge said that Coinbase had no direct role in the transactions, despite allegedly promoting tokens by describing their “supposed value proposition” and engaging in “airdrops” of free tokens to increase trading volume.

“These activities of an exchange are part of the marketing efforts, materials and services that the courts … have found insufficient” to qualify the defendants as sellers, Engelmayer wrote.

The judge dismissed the federal securities law claims with prejudice, meaning they cannot be refiled.

Lawyers for the clients did not respond to requests for comment.

Clients of the Binance cryptocurrency exchange are appealing the decision of another Manhattan judge dismissal last March of a similar demand.

The scrutiny of the cryptocurrency industry has grown in the past year as cryptocurrency prices have fallen and several key players, including Sam Bankman-Fried’s FTX exchange and hedge fund Three Arrows Capital, have gone bankrupt.

Last month, the US Securities and Exchange Commission (SEC) loaded the now-bankrupt lender Genesis Global Capital and the Gemini Trust exchange, run by Cameron and Tyler Winklevoss, with the sale of unregistered securities.

Coinbase has said it has received investigative subpoenas from the SEC and requests for information about its client programs, including its processes for listing assets.

The dismissed lawsuit sought to prevent Coinbase from trading tokens without registering as a stock exchange or broker-dealer, and to obtain damages for losses and transaction fees.

The case is Underwood et al v Coinbase Global Inc, US District Court, Southern District of New York, No. 21-08353.

Reporting by Jonathan Stempel in New York; Edited by Cynthia Osterman and Bill Berkrot

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