Recently, six Coinbase customers took legal action against the popular cryptocurrency exchange, Coinbase Global, along with its subsidiaries and CEO, Brian Armstrong. The class-action lawsuit, filed on May 5, makes the bold claim that the digital assets offered on Coinbase are, in fact, securities. This includes well-known tokens such as Solana, Polygon, Near Protocol, and more. The plaintiffs argue that these tokens should be classified as ‘investment contracts’ and therefore subject to state securities laws.
The lawsuit goes even further by alleging that Coinbase knowingly and intentionally violated state securities laws by falsely claiming to be a “Securities Broker” in its user agreement. The plaintiffs argue that Coinbase’s entire business model is built on a deception – claiming they do not sell securities while knowing they are engaging in activities that suggest otherwise. According to the lawsuit, this behavior constitutes a breach of trust and a violation of state securities regulations.
The plaintiffs, hailing from California and Florida, are seeking full recission of their purchase agreements with Coinbase, along with statutory damages under state law and injunctive relief. This signifies a serious attempt to hold Coinbase accountable for its alleged misconduct and to seek reparations for the harm caused. This legal battle adds to Coinbase’s existing troubles, as they are currently facing a separate lawsuit initiated by the U.S. Securities and Exchange Commission (SEC) for similar violations of securities laws.
Industry Response and Financial Standing
In response to these legal challenges, Coinbase has argued that the secondary sale of crypto assets should not be classified as securities. The exchange has filed an interlocutory appeal in an attempt to contest the SEC lawsuit. Additionally, pro-XRP lawyer John Deaton has come to the defense of over 4,700 Coinbase customers by filing an amicus brief. His involvement adds an interesting twist to the ongoing legal saga surrounding Coinbase’s practices.
Despite these legal battles, Coinbase recently reported a significant increase in revenue for the first quarter, surpassing expectations with a total of $1.64 billion. The exchange’s transaction revenue nearly tripled, reaching $1.07 billion, with consumer transaction revenue alone doubling compared to the previous year. This financial success stands in stark contrast to the legal challenges the company is currently facing, raising questions about the sustainability of Coinbase’s growth trajectory amidst these legal uncertainties.
The class-action lawsuit against Coinbase sheds light on the potential legal risks and regulatory challenges faced by cryptocurrency exchanges in the current landscape. As the industry continues to evolve and face increased scrutiny, it remains to be seen how companies like Coinbase will navigate these turbulent waters and maintain the trust of their customers and the broader market.