Coinbase, a popular cryptocurrency exchange, and its CEO, Brian Armstrong, are facing a fresh lawsuit which claims that investors were tricked into purchasing securities and that the company’s business model is illegal. The class-action lawsuit was filed in the United States District Court for the Northern District of California San Francisco Division and represents plaintiffs from California and Florida. The lawsuit alleges that Coinbase has been knowingly violating state securities laws since its inception by selling digital assets that are considered securities, including tokens such as Solana, Polygon, Near Protocol, Decentraland, Algorand, Uniswap, Tezos, and Stellar Lumens.
The complainants argue that Coinbase itself acknowledges its role as a “Securities Broker” in its user agreement, thus classifying the digital asset securities sold on the platform as investment contracts or other types of securities. They also claim that Coinbase Prime brokerage is engaged in securities brokerage. The plaintiffs are seeking a complete rescission of their investments, as well as statutory damages under state law and injunctive relief through a jury trial. This lawsuit bears similarities to another class-action suit that accuses Coinbase of causing harm to consumers through the sale of securities.
Coinbase has countered these claims by arguing that the secondary sales of crypto assets do not meet the criteria of securities transactions, and they dispute the relevance of securities regulations in this context. It’s worth noting that this new lawsuit is separate from Coinbase’s well-known legal battle with the U.S. Securities and Exchange Commission (SEC), which also questions whether tokens sold on Coinbase should be classified as securities. In response to a judge’s decision allowing the case to proceed, Coinbase has recently submitted an interlocutory appeal.
In a recent filing on April 26, John Deaton, a crypto lawyer who is currently running an election campaign to unseat Senator Elizabeth Warren, submitted an amicus brief in support of a motion for interlocutory appeal on behalf of 4,701 Coinbase customers. This further highlights the ongoing legal challenges faced by the cryptocurrency exchange.
Despite these legal battles, Coinbase has reported a strong recovery in the first quarter of 2024. This can be attributed to improved market performance and the introduction of spot Bitcoin exchange-traded funds (ETFs). The exchange recorded $1.6 billion in total revenue and $1.2 billion in net income for the first quarter, with $1 billion in adjusted earnings before interest, taxes, depreciation, and amortization.
In conclusion, Coinbase and its CEO are currently facing a class-action lawsuit that accuses them of deceiving investors and engaging in illegal activities. The case revolves around the sale of digital asset securities on the platform, and the plaintiffs are seeking a range of remedies through a jury trial. This lawsuit is separate from Coinbase’s legal battle with the SEC, and the company has recently filed an appeal in response to the judge’s decision. Despite these legal challenges, Coinbase has reported strong financial results in the first quarter of 2024.