Coinbase confronted with fresh legal action for purportedly deceiving investors

Crypto exchange Coinbase and its CEO, Brian Armstrong, are facing a fresh class-action lawsuit. The lawsuit, filed in the United States District Court, alleges that investors were deceived into buying securities and that Coinbase’s business model is illegal. The plaintiffs claim that Coinbase’s digital asset sales have knowingly violated state securities laws since the company’s inception. They argue that tokens such as Solana (SOL), Polygon (MATIC), Near Protocol (NEAR), Decentraland (MANA), Algorand (ALGO), Uniswap (UNI), Tezos (XTZ), and Stellar Lumens (XLM) are securities. The complainants point to Coinbase admitting that it is a “Securities Broker” in its user agreement, making the digital asset securities sold by the exchange investment contracts or other securities. They also argue that Coinbase Prime brokerage is a securities broker. The plaintiffs are seeking full rescission, statutory damages under state law, and injunctive relief through a jury trial. This lawsuit is similar to another class-action suit that alleges consumer harm from Coinbase’s sale of securities. Coinbase has previously argued that secondary crypto asset sales did not meet securities transaction criteria and has disputed the relevance of securities regulations. This new lawsuit is separate from Coinbase’s ongoing legal battle with the U.S. Securities and Exchange Commission, which raises questions about whether tokens sold on Coinbase should be classified as securities. Coinbase has recently filed an interlocutory appeal in response to a judge’s decision allowing the case to proceed. In a filing in the U.S. District Court, crypto lawyer John Deaton filed an amicus brief in support of a motion for interlocutory appeal on behalf of 4,701 Coinbase customers. Despite these legal challenges, Coinbase reported a strong rebound in the first quarter of 2024, with $1.6 billion in total revenue and $1.2 billion in net income.