Crypto Investors File a Class Action Against Crypto Giant Coinbase

Bob Mason
Updated: Mar 21, 2022, 08:10 GMT+00:00

Coinbase uses file a class action against Coinbase in what could become a common theme should the SEC fail to clearly define crypto regulations.

Coinbase logo and Bitcoins

In this article:

Key Insights:

  • Coinbase users file a claim against the exchange for allegedly selling securities illegally.
  • Three plaintiffs list 79 tokens as securities within a 255-page class action suit.
  • The claim not only asks for monetary relief but also injunctions against Coinbase to operate without a securities license.

Coinbase is a crypto exchange based in the U.S and listed on the NASDAQ. Supporting crypto trading, Coinbase is one of the world’s leading crypto exchanges, servicing clients in the U.S and overseas.

For Coinbase and other major crypto exchanges, it has been a tough 12-months. Increased regulatory scrutiny has placed crypto exchanges and the crypto market in the spotlight.

Few, however, would have expected crypto traders to raise the question of security or not security.

U.S Crypto Investors File Lawsuit Against Coinbase

Over the last week, Coinbase found itself in the unusual position of having to face a class action filed, not by the SEC, but by three Coinbase users.

Plaintiffs Christopher Underwood, Louis Oberlander, and Henry Rodriguez have filed a claim against Coinbase Global Inc., Coinbase Inc., and Coinbase CEO Brian Armstrong.

The class action lists 79 tokens, alleging that the tokens are securities. Other claims within the class-action include:

  • “Coinbase lists and sells securities but is not registered as a securities exchange.”
  • Digital assets listed on Coinbase are securities

The list of tokens includes DOGE, DOT, LINK, MANA, MATIC, SHIB, SOL, and XRP, among others. Cryptos such as BTC, ETH, and LUNA are not listed among the 79 tokens.

The claim goes on to allege that,

  • Coinbase offers and sells unregistered securities.
  • The Coinbase exchanges are rule 3b-16(a) systems and therefore are unregistered exchanges under the exchange act.
  • Coinbase operates as an unregistered broker-dealer on the Coinbase exchanges.

Within the 255-page filing, there is also a Prayer for Relief section.

Here, the plaintiffs call for appropriate relief that includes rescission, restitution, disgorgement, and injunctions preventing Coinbase from offering tokens for purchase and sale without relevant registrations.

Current Regulatory Landscape Makes for a Difficult Trial

The current regulatory landscape makes for a costly and challenging trial for the plaintiffs, should the case go to court. The SEC case against Ripple Lab and its executives has been ongoing since December 2020.

Until the SEC can deliver clear crypto regulations, the age-old question of whether a token is a security will remain unanswered.

Interestingly, the plaintiffs chose to omit Ethereum, which forms an integral part of Ripple Lab’s defense.

Following a court ruling to allow Ripple to use a fair notice defense last Friday, the SEC is looking for the judge to reconsider its ruling on releasing internal email communications from 2018.

The internal communications related to the infamous William Hinam speech, where he said,

“Ethereum (ETH) is not a security.”

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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