Crypto-based firms, like Ripple, have not had pleasant run-ins with the law recently, and now it appears that the Nasdaq-listed Crypto exchange Coinbase is next on the agenda to be slammed with a class-action lawsuit.
Coinbase is being sued by three individuals who are claiming that the platform is letting customers trade 79 cryptocurrencies, including Ripple (XRP), Cardano (ADA), Solana (SOL), Stellar Lumens (XLM), Shiba Inu (SHIB), Dogecoin (DOGE), Tezos (XTZ), and Polkadot (DOT), as unregistered securities.
Coinbase finds itself in a class-action lawsuit
The class-action lawsuit was filed on March 11th against Coinbase Global Inc. by Christopher Underwood, Louis Oberlander and Henry Rodriguez, reportedly on behalf of all Coinbase users.
Source: classaction.org
They allege that from October 8th to the present, Coinbase has been letting customers buy and sell 79 different cryptocurrencies without disclosing that they are securities. Furthermore, neither Coinbase nor the cryptocurrencies being traded have been registered with the U.S. Securities and Exchange Commission (SEC). Because of this, the plaintiffs claim that Coinbase violates federal and state law by acting as an unregistered securities bourse and, therefore, should compensate all users who suffered losses while trading them.
The lawsuit also places Coinbase’s CEO, Brian Armstrong, into the crosshairs, accusing him of knowing “the existence of the facts that give rise to the liability here because he knew that Coinbase was not registered as a securities exchange or as a broker-dealer and that it sold the Tokens, which were unregistered securities.”
Furthermore, the lawsuit declares that trades conducted on Coinbase do not take place on the blockchain and aren’t transferring assets between users. Essentially, Coinbase is only updating internal records to credit and debit the parties involved in the transaction in its accounts, instead of facilitating any form of asset exchange, which the plaintiffs deem unsatisfactory:
“Purchasers do not have access to the disclosures that accompany the issuances of traditional securities. Rather, investors receive — at most — only the so-called whitepapers, which describe the token, but do not satisfy the requirements for a prospectus under federal and state securities laws.”
According to Coinbase’s class-action lawsuit document:
“This case is a class action where the aggregate claims of all members of the proposed classes exceed $5,000,000, exclusive of interest and costs.”
Source: classaction.org
The plaintiffs seek to “recover damages, consideration paid for tokens, and trading fees, together with interest thereon, as well as attorneys’ fees and costs, to the fullest extent permitted by law.”
Things may get worse for Coinbase
Unfortunately, this isn’t the first time Coinbase has been sued for wrongdoing, whether for alleged market manipulation or insider trading. Suffice to say, Coinbase has seen better days – but unfortunately, things may get worse before they get better.
For starters, the SEC had tackled similar cases in the past when they cracked down in initial coin offerings in 2018 and again against Ripple and Blockfi recently. It doesn’t help that this isn’t Coinbase’s first run-in with the SEC either, and especially not the fact that SEC Chair Gary Gensler had already issued a not-so-subtle warning to Coinbase to register themselves with the SEC back in September. If the allegations for this class-action prove to be substantial enough, then Coinbase may find itself in the SEC’s crosshairs yet again.
Atop Coinbase’s troubles with the lawsuit, Craig Wright, an Australian computer scientist, recently promised to launch “the biggest legal case in human history” against Coinbase (among a slew of entities which also include Bitcoin.org, eToro, Blockstream, Square, BTC Core, and Kraken) for their use of the Bitcoin name in promoting unrelated products.