Following a notable surge in first-quarter revenue, cryptocurrency exchange Coinbase finds itself in a significant legal dispute. Six platform users have initiated a lawsuit, leveling severe allegations against Coinbase and its CEO, Brian Armstrong. The suit claims that the company has breached state securities laws and misled users by asserting that it does not trade in crypto tokens as securities. This stance could have far-reaching implications for the cryptocurrency industry.
The lawsuit, filed in the United States District Court for the Northern District of California, San Francisco Division, specifically targets Coinbase’s listing of cryptocurrencies such as Solana, Polygon, Near Protocol, Decentraland, Algorand, Uniswap, Tezos, and Stellar as securities. This detailed list underscores the breadth of the allegations and the potential impact on Coinbase’s operations.
According to the plaintiffs, Coinbase has operated in a murky crypto ecosystem on the fringes of legality since its inception over a decade ago. They assert that Coinbase’s business model hinges on a falsehood: the claim that “we do not sell securities.” The lawsuit accuses Coinbase of knowingly engaging in deceptive practices, believing that seeking forgiveness later is more accessible than seeking permission upfront.
In its user agreement, the lawsuit further contends that Coinbase explicitly labels the crypto assets it sells as “securities.” Yet it has never registered itself, its personnel, or the crypto securities it deals in. Moreover, the document highlights that Coinbase acknowledges its role as a “Securities Broker.”
In response to these accusations, the plaintiffs seek injunctive relief through a jury trial and a complete rescission, as reported by CoinTelegraph. However, Coinbase has not issued an official statement regarding the lawsuit, though CoinTelegraph mentions that the exchange has argued that the sales of secondary crypto-assets do not meet the criteria for securities transactions.
Notably, this is not the first time Coinbase has faced legal scrutiny over its compliance with US securities laws. In January of this year, a federal judge in Manhattan questioned Coinbase and the US securities regulator over their conflicting views on classifying digital assets as securities. The Securities and Exchange Commission (SEC) had previously filed a lawsuit against Coinbase, leading the exchange to petition the US court to dismiss the SEC’s lawsuit. This ongoing legal battle underscores Coinbase’s persistent struggle with regulatory compliance.
Despite these legal challenges, Coinbase reported robust profits in the first quarter 2024. The exchange boasted total revenue of $1.6 billion and net income of $1.2 billion for Q1 2024. Additionally, Coinbase reported $1 billion in adjusted earnings before interest, taxes, depreciation, and amortization.
