Coinbase faces new lawsuit: deceiving investors into buying securities

Author: Amaka Nwaokocha, CoinTelegraph; Compiler: Wuzhu, Golden Finance

The Coinbase cryptocurrency exchange and its CEO Brian Armstrong face a new class action lawsuit alleging that investors were deceived into buying securities and claiming that the company's business model is illegal.

The lawsuit was filed in the San Francisco Division of the United States District Court for the Northern District of California, on behalf of plaintiffs Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi and Brett Maggard from California and Florida, accusing Coinbase of knowingly selling digital assets and arguing that the company has violated state securities laws since its inception.

The lawsuit alleges that Solana’s SOL, Polygon’s MATIC, Near’s NEAR, Decentraland’s MANA, Algorand’s ALGO, Uniswap’s UNI, Tezos’ XTZ, and Stellar Lumens’ XLM tokens are securities.

Screenshot of the class action lawsuit. Source: CourtListener

The complainants allege that Coinbase acknowledged in its user agreement that it was a “securities broker” that sold digital asset securities on the exchange as investment contracts or other securities. They also claim that Coinbase Prime Brokerage is a securities broker.

The plaintiffs seek full rescission, statutory damages under state law, and injunctive relief through a jury trial. The lawsuit is similar to another class-action lawsuit alleging that Coinbase’s sale of securities caused harm to consumers.

Coinbase argues that secondary crypto asset sales do not meet the standards for securities transactions and questions the relevance of securities regulation.

The new lawsuit is separate from Coinbase’s well-publicized legal battle with the U.S. Securities and Exchange Commission, which also questioned whether tokens sold on Coinbase should be classified as securities. Coinbase recently filed an interlocutory appeal against the judge’s decision to allow the case to proceed.

In an April 26 filing with the U.S. District Court for the Southern District of New York, John Deaton, a cryptocurrency attorney currently campaigning to unseat Sen. Elizabeth Warren, filed an amicus brief in support of representing 4,701 Coinbase customers.

Coinbase reported a strong rebound in the first quarter of 2024, supported by better market performance and the launch of a spot Bitcoin exchange-traded fund. The exchange had total revenue of $1.6 billion in the first quarter, net income of $1.2 billion, and adjusted EBITDA of $1 billion.