Renowned crypto platform, Coinbase, along with its CEO, Brian Armstrong, confront a new class-action lawsuit. The suit alleges the individuals were misled into procuring securities and questions the legality of the company’s business model.
Brought forward by plaintiffs from both Florida and California, this suit has been filed in the United States District Court for the Northern District of California San Francisco Division. The plaintiffs contend that Coinbase has been intentionally flouting state securities regulations since its establishment through its digital asset sales.
The plaintiffs maintain that SOLANA’s SOL, POLYGON’s MATIC, NEAR PROTOCOL’s NEAR, DECENATLAND’s MANA, UNISWAP’s $UNI, ALGORAND’s ALGO, TEZOS’s XTZ, and STELLAR LUMENS’ XLM tokens are all securities.
According to the complainants, Coinbase has self-identified as a “Securities Broker” within its user agreement. They also argue that the digital asset securities sold on the platform should be construed as investment contracts or as other securities. They further posited that Coinbase Prime brokerage is, in fact, a securities broker. If successful, the plaintiffs are hopeful for full rescission, statutory damages under state law, and injunctive relief to be put in place via a jury trial. This suit is similar to another class-action lawsuit that expressed concerns over consumer detriment through securities sales.
Coinbase has rebuffed these allegations by stating that secondary crypto asset sales did not conform to the standard criteria for securities transactions and challenged the applicability of securities regulation. However, this lawsuit is different from the well-known legal feud Coinbase is currently undergoing with the U.S. Securities and Exchange Commission, where the classification of tokens sold on Coinbase as securities is also being questioned.
Coinbase filed an interlocutory appeal in reaction to a judge’s ruling allowing this case to move forward. John Deaton, a crypto lawyer who is running a campaign against Senator Elizabeth Warren, has filed an amicus brief backing the motion for interlocutory appeal on behalf of 4,701 Coinbase customers.
Despite these legal battles, Coinbase reported a robust comeback for the first quarter of 2024, buoyed by a market uptick and the introduction of spot Bitcoin exchange-traded funds. The platform registered $1.6 billion in total revenue and $1.2 billion in net income for that quarter, resulting in $1 billion in adjusted earnings before interest, taxes, depreciation, and amortization1.