Judge Says Shareholders’ Lawsuit Against Coinbase Can Move Forward

A proposed class action lawsuit brought against Coinbase by shareholders is reportedly moving forward.

The cryptocurrency exchange’s bid to have the suit dismissed was rejected Thursday (Sept. 5) by U.S. District Judge Brian Martinotti, Reuters reported Friday (Sept. 6).

The shareholders allege that Coinbase downplayed the likelihood that it would be sued by the Securities and Exchange Commission (SEC), according to the report.

Later, when the SEC sued the firm on June 6, 2023, accusing it of operating an unregistered securities exchange, Coinbase’s share price fell 12% on the same day, the report said.

In his Thursday ruling, Martinotti said the shareholders’ allegations were adequate and that they could also pursue claims that Coinbase misrepresented the risk customers would face if the company filed for bankruptcy, per the report.

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

When the SEC sued Coinbase in June 2023 for allegedly violating securities laws, it said in the lawsuit that the company had, since 2019, “made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities.”

“Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said at the time in a news release.

Coinbase asked the court to dismiss the SEC’s complaint, but a judge ruled in March that the lawsuit can go before a jury trial.

“[T]he court finds that the SEC adequately alleges that Coinbase, through its staking program, engaged in the unregistered offer and sale of securities,” U.S. District Judge Katherine Polk Failla wrote in her ruling.

In the same ruling, the judge dismissed another of the SEC’s claims: that Coinbase acted as an unregistered broker by offering its wallet application.

Commenting at the time on the two elements of the court’s ruling, Coinbase Chief Legal Officer Paul Grewal said in a post on X (formerly Twitter): “We were prepared for this, and we look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation.”