Crypto Exchange Coinbase Sued for Alleged Securities Violations

Crypto Exchange Coinbase Sued for Alleged Securities Violations

Six users of the Coinbase platform have recently initiated a class-action lawsuit against Coinbase Global, along with two of its subsidiaries – Coinbase, Inc. and Coinbase Asset Management, LLC – as well as its CEO, Brian Armstrong, on May 5th.

The lawsuit contends that the digital assets available on Coinbase should be classified as securities. Notable among these assets are Solana (SOL), Polygon (MATIC), Near Protocol (NEAR), Decentraland (MANA), Algorand (ALGO), Uniswap (UNI), Tezos (XTZ), and Stellar (XLM). The plaintiffs argue that these tokens are essentially ‘investment contracts’ and thus subject to state securities laws.

According to the lawsuit, Coinbase explicitly identifies itself as a “Securities Broker” within its user agreement. As a result, the defendants are accused of knowingly and repeatedly violating state securities laws, while also deceiving their users. This assertion was made in the lawsuit filed with the U.S. District Court for the Northern District of California, San Francisco Division.

The lawsuit further highlights that Coinbase’s foundational business premise is flawed, resting on a falsehood and an optimistic belief. The falsehood being the claim that “we do not sell securities,” and the optimistic belief that, despite knowing they would eventually be exposed, “it is better to ask for forgiveness than permission.”

The plaintiffs, hailing from California and Florida, including Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi, and Brett Maggard, are seeking full rescission of their purchase agreements, statutory damages under state law, and injunctive relief.

Coinbase is already embroiled in a legal battle with the U.S. Securities and Exchange Commission (SEC), which alleges that the exchange has violated securities laws. Coinbase’s defense centers around the argument that the secondary sale of crypto assets does not constitute securities. Following a judge’s decision to allow the SEC lawsuit to proceed, the exchange filed an interlocutory appeal.

In a separate development, John Deaton, a prominent advocate for XRP, has filed an amicus brief in support of a motion for interlocutory appeal on behalf of 4,701 Coinbase customers. Deaton, who is also running an election campaign against Senator Elizabeth Warren, is known for his legal activism in the cryptocurrency sphere.

Despite these legal challenges, Coinbase reported a significant surge in its Q1 revenue, exceeding expectations with a total of $1.64 billion. Transaction revenue experienced a nearly threefold increase to $1.07 billion, with consumer transaction revenue alone reaching $935 million, representing a doubling compared to the previous year.