Coinbase, one of the leading cryptocurrency exchange platforms in the United States, is facing a lawsuit filed by its shareholders.
The shareholders accuse Coinbase of misleading them about the risks of lawsuits by the Securities and Exchange Commission (SEC), a threat that ultimately materialized in June 2023. Federal judge Brian Martinotti from the district of New Jersey recently ruled that some of the allegations made by the plaintiffs were strong enough to warrant legal action.
The Court finds that plaintiffs have sufficiently alleged that defendants misleadingly depicted a favorable picture of the unlikeliness of the SEC filing an enforcement action by repeatedly emphasizing that the crypto assets they listed were not securities.
The case dates back to 2022 when several Coinbase shareholders filed a collective lawsuit against the company. They claim that the platform made “materially false and misleading” statements regarding the regulatory risks it faced, particularly the likelihood of an SEC lawsuit. Indeed, Coinbase had repeatedly emphasized that the digital assets it listed were not securities, which, according to the platform, reduced the probability of a lawsuit by the financial market regulator.
In June 2023, however, the SEC filed a lawsuit against Coinbase, accusing it of violating US federal securities laws. This decision strengthened the arguments of the plaintiffs, who claim that the company did not properly assess, or at least transparently communicate, the legal risks it faced.
Part of the Allegations Dismissed
In his September 7, 2024 decision, Judge Martinotti dismissed a large portion of the allegations made by the shareholders. However, he believed that the ones related to Coinbase’s negligence regarding regulatory risks deserved further examination. The plaintiffs were able to plausibly demonstrate that the platform had misleadingly depicted an optimistic image of the unlikeliness of the SEC taking legal action.
On the other hand, several other accusations related to statements about proprietary trading practices or customer trust in the company were not upheld by the judge.
A Continuing Legal Battle
While the judge partially accepted Coinbase’s request to dismiss the shareholders’ allegations, some accusations remain unresolved and will be examined in more detail during the next stages of the trial. Coinbase, which had already failed to largely dismiss the SEC’s complaint, now finds itself caught between two legal fronts: the regulatory authority and its own shareholders.
Coinbase’s Response
In a statement, a spokesperson for Coinbase emphasized that “the court agreed that a significant portion of the plaintiffs’ claims should be dismissed.” However, the company also clarified that the remaining accusations are still in the judicial processing stage due to dismissal motion procedures, where the plaintiffs’ allegations are temporarily assumed to be true without actual proof. Coinbase remains confident in its chances of success in the substantive case, asserting that the company has acted in accordance with the law and looks forward to defending its position with supporting evidence.
