Coinbase Must Face Shareholder Lawsuit Over Regulator Risk Concerns, Judge Rules

As a seasoned crypto investor with over a decade of experience under my belt, I’ve seen my fair share of regulatory battles and lawsuits. The recent development involving Coinbase and the SEC is another reminder that this wild west of digital assets isn’t as lawless as it seems.

Last week, a U.S. judge partially rejected Coinbase’s petition to dismiss a class-action lawsuit filed by shareholders. The shareholders allege that Coinbase deceived them regarding the possibility of legal action from the U.S. Securities and Exchange Commission (SEC) for alleged securities violations.

2022 saw a group of Coinbase shareholders file a lawsuit against the exchange, claiming that Coinbase made misleading statements about its operations and potential regulatory action. The presiding US District Judge, Brian Martinotti, based in New Jersey, declared on Thursday that while the plaintiffs had a valid argument suggesting Coinbase was negligent regarding regulatory action (as the SEC did indeed sue Coinbase), they failed to present a convincing case for most of their allegations.

In the court document, it was stated: “The Court agrees with the Plaintiffs’ claim that Defendants intentionally gave a false impression about the likelihood of SEC taking enforcement action against their listed crypto assets by constantly stressing that these assets were not considered securities.

In June 2023, legal action was initiated against Coinbase by the Securities and Exchange Commission due to accusations that the platform breached U.S. federal securities law. Moreover, most of the motion to dismiss this SEC lawsuit was denied, which implies that the judge managing the case considers the SEC’s arguments to be valid enough for further examination in a court of law.

The legal action as a group, initiated in 2021 when share purchases allegedly started, has since been revised in July 2023. Coinbase submitted documents regarding their request to discard the case in December 2023.

According to Judge Martinotti’s latest ruling, Coinbase’s motion to dismiss has been partially approved and partially denied. Specifically, the part of the motion that relies on the Proprietary Trading Statements and Bankruptcy Statements, which emphasize customers’ trust in the company, has been accepted. However, all other aspects of the motion have been rejected.

In response to a statement, a representative from Coinbase explained that a substantial part of the plaintiff’s accusations were ruled to be dropped. However, it is worth mentioning that the remaining points are still being considered due to how the motion to dismiss functions: the court makes assumptions based on the plaintiff’s claims instead of the actual events. The company remains certain that they are correct in terms of facts and law, and they eagerly await the opportunity to present their remaining case. They express gratitude for the Court’s thorough analysis.