Shareholder Lawsuit Proceeds Against Crypto Exchange Coinbase Regarding Risks Associated with U.S. SEC Regulations

A motion to dismiss a class action lawsuit brought by investors against Coinbase was denied by a federal court judge. These investors claim the prominent U.S. cryptocurrency exchange platform misled them by downplaying the risk of SEC litigation.

On a decision made Thursday, Judge Brian Martinotti of the Newark, New Jersey U.S. District Court, addressed the issue months after the SEC filed a civil lawsuit on June 6, 2023. This lawsuit charged Coinbase with operating an exchange without proper registration, leading to a 12% plummet in the company’s stock value.

Martinotti ruled that shareholders presented sufficient claims that Coinbase and its key executives misled them, by painting an overly rosy picture of the unlikelihood of an SEC enforcement case, emphasizing their belief that they were not listing securities.

According to Martinotti’s 50-page verdict, allegations that Coinbase misrepresented the risk of customer asset loss should the company declare bankruptcy, also stand ground for further pursuit.

When Coinbase introduced new disclosures and reported a steeper-than-anticipated drop in quarterly earnings, its stock experienced a significant fall of over 26% on May 11, 2022.

However, claims that Coinbase falsely claimed not to engage in proprietary trading were dismissed by the judge. Coinbase CEO Brian Armstrong and other senior executives are defendants in the case.

Responding to the ruling on Friday, Coinbase stated: “We remain confident that we are right on the facts and the law, and we look forward to proving the rest of our case.”

Legal representatives of the shareholders have yet to offer comments in response to the decision.

A similar attempt to dismiss the SEC lawsuit was previously turned down by a Manhattan federal judge in March.

The class action, pioneered by Swedish pension fund Sjunde AP-Fonden, represents individuals who purchased Coinbase shares between April 14, 2021, and June 5, 2023.

The ongoing lawsuit is formally known as In re Coinbase Global Inc Securities Litigation and is under the jurisdiction of the U.S. District Court for the District of New Jersey, case number 22-04915.