Another FTX in the making? Coinbase sued for ‘deceiving investors’

In a situation that is reminiscent of the FTX crypto crisis, cryptocurrency exchange Coinbase is now facing a lawsuit from some users, who are alleging that the platform deceived its customers and investors
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In the wake of reporting a surge in first-quarter revenue, cryptocurrency exchange Coinbase is now entangled in a legal battle. Six users of the platform have filed a lawsuit, accusing Coinbase and its CEO Brian Armstrong of breaching state securities laws and misleading users by claiming that the exchange doesn’t deal in crypto tokens as securities.

The lawsuit has been lodged in the United States District Court for the Northern District of California, San Francisco Division. It alleges that Coinbase lists cryptocurrencies like Solana, Polygon, Near Protocol, Decentraland, Algorand, Uniswap, Tezos, and Stellar as securities.

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 entire business model hinges on a falsehood: the claim that “we do not sell securities.” The lawsuit accuses Coinbase of knowingly engaging in deceptive practices, banking on the belief that seeking forgiveness later is easier than seeking permission upfront.

The lawsuit further contends that Coinbase, in its user agreement, 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 are seeking injunctive relief through a jury trial and a full 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.

This isn’t the first time Coinbase has come under legal scrutiny for allegedly violating US securities laws. In January of this year, a federal judge in Manhattan scrutinized Coinbase and the US securities regulator over their conflicting views on whether and when digital assets qualify as securities. The Securities and Exchange Commission (SEC) had previously filed a lawsuit against Coinbase, prompting the exchange to petition the US court to dismiss the SEC’s lawsuit.

Despite these legal challenges, Coinbase reported robust profits in the first quarter of 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.

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