Coinbase faces a new class-action lawsuit alleging that the company violated securities laws by selling unregistered digital assets including Solana, Polygon, and Uniswap. The lawsuit claims that Coinbase's business model is illegal and that it deceived investors by selling securities without proper registration. The plaintiffs seek damages, rescission of purchases, and injunctive relief, citing Coinbase's own user agreement and Prime brokerage as evidence of its role as a securities broker.
Coinbase Faces Renewed Legal Scrutiny in Securities Lawsuit
San Francisco, California - May 6, 2024 - Coinbase Global, Inc. and its Chief Executive Officer, Brian Armstrong, have been named as defendants in a new class-action lawsuit filed in the United States District Court for the Northern District of California, San Francisco Division. The plaintiffs in the case allege that Coinbase's business model constitutes an illegal scheme that has knowingly deceived investors into purchasing unregistered securities, thereby violating state securities laws.
The lawsuit, filed on behalf of California and Florida residents Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi, and Brett Maggard, asserts that Coinbase has engaged in the unlawful sale of digital assets since its inception. Specific tokens identified as unregistered securities in the complaint include Solana (SOL), Polygon (MATIC), Near Protocol (NEAR), Decentraland (MANA), Algorand (ALGO), Uniswap (UNI), Tezos (XTZ), and Stellar Lumens (XLM).
The complainants contend that Coinbase's own user agreement implicitly acknowledges its role as a "Securities Broker," effectively rendering the digital assets sold on the exchange as investment contracts. Furthermore, they allege that Coinbase Prime brokerage operates as a securities broker. The plaintiffs seek rescission of their purchases, statutory damages under state law, and injunctive relief through a jury trial.
This lawsuit echoes similar claims made in previous cases against Coinbase, which has been repeatedly accused of selling unregistered securities. Coinbase has consistently maintained that secondary sales of crypto assets do not fulfill the requirements for securities transactions and contested the applicability of securities laws to its operations.
The lawsuit comes as Coinbase navigates an ongoing legal battle with the U.S. Securities and Exchange Commission (SEC). The SEC alleges that the exchange has violated securities laws by facilitating the trading of at least 13 crypto tokens that should have been registered as securities.
In response to a judge's ruling allowing the SEC case to proceed, Coinbase recently filed an interlocutory appeal. Crypto attorney John Deaton has also filed an amicus brief on behalf of over 4,700 Coinbase customers.
Despite these legal challenges, Coinbase reported strong financial performance in the first quarter of 2024. The exchange attributed its improved financial position to enhanced market conditions and the launch of spot Bitcoin exchange-traded funds (ETFs). Coinbase's total revenue reached $1.6 billion, with a net income of $1.2 billion and adjusted earnings before interest, taxes, depreciation, and amortization of $1 billion.
The outcome of the lawsuit against Coinbase remains uncertain. However, the allegations raised by the plaintiffs have the potential to reshape the regulatory landscape for digital asset exchanges and could have significant implications for both investors and the crypto industry as a whole.