NEW YORK - A federal appeals court on Friday revived a lawsuit by Coinbase customers who accused the largest U.S. cryptocurrency exchange of illegally selling unregistered securities and failing to register as a broker-dealer.

The 2nd U.S. Circuit Court of Appeals in Manhattan said a lower court judge should not have relied on a December 2021 user agreement to find that Coinbase did not hold title to, and was not the seller of, 79 tokens that the customers traded.

In its 3-0 decision, the appeals court said Coinbase had over time materially changed its user agreements, and the December 2021 version was not "conclusive" when evaluating the customers' legal claims.

Customers in the proposed class action also argued that they never accepted that version, making it irrelevant in deciding to dismiss their case.

Friday's decision also upheld the dismissal of claims under the federal Securities Exchange Act seeking to rescind some customer transactions.

The case was returned to U.S. District Judge Paul Engelmayer in Manhattan, who had dismissed it in February 2023.

In a post on social media platform X, Coinbase's chief legal officer Paul Grewal said the exchange welcomed the dismissal of some claims.

"There's no private liability for the secondary trading of digital assets on exchanges like Coinbase," he wrote. "Why? Because contracts matter."

Jordan Goldstein, a lawyer for the customers, said they were grateful with the decision and plan to resume their case against Coinbase and its Chief Executive Brian Armstrong.

In finding that Coinbase wasn't a seller, Engelmayer had said the exchange had no direct role in transactions, despite having allegedly promoted tokens' "purported value proposition" and distributed free tokens to boost trading volume.

On March 27, U.S. District Judge Katherine Polk Failla in Manhattan denied Coinbase's bid to dismiss a Securities and Exchange Commission lawsuit claiming it illegally facilitated the trading of tokens that should have been registered as securities.

The case is Oberlander et al v Coinbase Global Inc et al, 2nd U.S. Circuit Court of Appeals, No. 23-184.

(Reporting by Jonathan Stempel in New York; Editing by Aurora Ellis)