A federal judge has ruled that Coinbase must face a class-action lawsuit from shareholders who accuse the cryptocurrency exchange of misleading them about the risks of regulatory action by the U.S. Securities and Exchange Commission (SEC).
In 2022, a group of Coinbase shareholders filed a lawsuit alleging that the company made “materially false and misleading statements” about its operations and the likelihood of facing regulatory action from the SEC. The lawsuit alleges that Coinbase painted an overly optimistic picture, downplaying the risk that its listed crypto assets could be considered securities and therefore subject to SEC enforcement.
United States District Judge Brian Martinotti, sitting in the District of New Jersey, partially denied Coinbase’s motion to dismiss the lawsuit. In his ruling, Judge Martinotti noted that the plaintiffs had plausibly argued that Coinbase was “negligent” about the possibility of regulatory action, a concern that materialized when the SEC filed a lawsuit against Coinbase in June 2023 alleging violations of U.S. federal securities laws. However, the judge rejected several other claims made by the plaintiffs.
“The Court finds that Plaintiffs have sufficiently alleged that Defendants have misleadingly portrayed a favorable picture that the SEC is unlikely to bring an enforcement action by repeatedly emphasizing that the crypto assets they list are not securities,” Judge Martinotti wrote in the court document.
The class action lawsuit, which dates back to 2021 when the plaintiffs first began purchasing stock in Coinbase, was amended to reflect new developments in July 2023. Coinbase had moved to dismiss the case in December 2023, filing a brief. However, Judge Martinotti’s latest ruling allowed most of the plaintiffs’ claims to proceed, but partially dismissed the first count, specifically regarding statements regarding proprietary trading and customer trust in the company.
In response to the decision, a Coinbase spokesperson said:
“The court agreed that a significant portion of the plaintiff’s claims should be dismissed. It is important to note that the remaining pieces were allowed to proceed because of the way this motion to dismiss works: the court draws inferences based on the plaintiff’s allegations rather than the facts of what happened. We are confident that we are right on the facts and the law, and we look forward to proving the rest of our case. We appreciate the court’s careful consideration.”
*This is not investment advice.