Coinbase faces new class action lawsuit for misleading investors

Coinbase, the largest cryptocurrency exchange in the United States by volume, and its CEO, Brian Armstrong, are accused in a new class action lawsuit. The company allegedly misled investors when purchasing securities, according to a lawsuit filed in the Northern District of California by the law firm Scott+Scott.

Coinbase is said to have sold securities

The plaintiffs, including Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi, and Brett Maggard of California and Florida, allege that Coinbase sold digital assets that they claim qualify as securities, such as Solana (SOL), Polygon, Near Protocol, Decentraland, Algorand, Uniswap, Tezos, and Stellar Lumens (XLM). They claim this sale violated state law since the company was founded.

According to the complaint, Coinbase has acknowledged in its user agreement that it is a “stock broker,” indicating that the digital assets sold should be considered investment contracts or other securities. The complainants specifically focus on the services of Coinbase prime brokerage as a stock broker/dealer.

They are seeking a complete rescission of the transactions, statutory damages and injunctive relief through a jury trial. This case has similarities to another class action lawsuit that also alleges that consumers have been harmed by Coinbase’s sale of securities.

Secondary crypto asset sales meet criteria according to Coinbase

However, Coinbase has disputed that the sale of secondary crypto assets meets the criteria for securities transactions, calling into question the relevance of securities regulations. The court examined various aspects of this argument and overturned some previous decisions, while affirming others.

This case stands out from a broader legal battle between Coinbase and the SEC over the classification of tokens sold on the platform as securities. Recently, Coinbase filed a preliminary appeal after a court decision allowed the case to proceed.

Campaign to oust Senator Elizabeth Warren

Additionally, John Deaton, a well-known crypto attorney who is currently campaigning to unseat Senator Elizabeth Warren, has filed an amicus brief in the U.S. District Court for the Southern District of New York in support of a motion for summary judgment on behalf of 4,701 Coinbase -customers.

Despite the legal challenges, Coinbase reported a strong recovery in the first quarter of 2024, with total revenue of $1.6 billion and net profit of $1.2 billion. This resulted in an adjusted EBITDA of $1 billion, demonstrating the company’s profitability before deducting expenses such as interest, taxes, depreciation and amortization.