Beleaguered US cryptocurrency exchange Coinbase is staring down yet another class action lawsuit.
Law firm Bragar Eagel & Squire filed the suit on Thursday in the US District Court of New Jersey, alleging Coinbase made false or misleading claims about its business activities and compliance policies for more than a year, according to a statement.
Specifically, the multi-faceted claim asserts Coinbase held customer’s digital assets knowing they could end up as the property of a bankruptcy estate, potentially forcing customers to be treated as the exchange’s “general unsecured creditors.”
Coinbase is alleged to have allowed US customers to trade digital assets which the exchange “knew or recklessly disregarded” which should have been registered with the Securities and Exchange Commission (SEC).
The New York law firm is acting on behalf of “all persons and entities” who bought “Coinbase securities” between April 14, 2021 and July 26, 2022. A Coinbase spokesperson did not immediately return a request for comment.
“The foregoing conduct subjected [Coinbase] to a heightened risk of regulatory and governmental scrutiny and enforcement action,” the law firm said in its statement.
But while it’s still early days for the suit, the allegations echo the SEC’s claims of Coinbase masquerading as an unregistered securities exchange.
Coinbase also facing class action lawsuit over Terra listing
Last month, the watchdog charged Coinbase’s former product manager, Ishan Wahi, with insider trading of at least 25 digital assets.
The SEC says nine of the 25 assets flagged are unregistered securities. Securities are tradable financial instruments whose definitions vary from jurisdiction to jurisdiction.
Shortly after Wahi’s charges were made public, Bloomberg indicated the SEC had initiated a probe into Coinbase which pre-dated the insider trading case.
In the US, a security is defined by the Howey Test, a decades-old US Supreme Court case determining whether an asset is an investment contract and should therefore fall under the SEC’s jurisdiction.
Preston Byrne, partner at New York law firm Anderson Kill, told Blockworks last week there’s a very strong possibility “that a lot of the things on Coinbase are investment contracts.”
News of Coinbase’s dealings with the SEC negatively impacted its share price (COIN), Bragar Eagel & Squire alleges, which slumped more than 21% on the day of Bloomberg’s report.
COIN shares have since recovered and then some, surging nearly 60% in five days, most recently buoyed by news of BlackRock deal to expand its institutional trading services.
A separate class action lawsuit, filed in June, reportedly alleges Coinbase failed in its duty of care by listing the revamped Terra Classic token on its platform, and neglected to disclose an alleged financial connection to Terraform Labs.
Also in June, lawyers representing Coinbase customers filed another class action lawsuit in the federal court in northern California over allegations the exchange promoted stablecoin GYEN that was termed, at the time, “anything but” stable.