Coinbase faces new lawsuit alleging investor fraud

Coinbase cryptocurrency exchange and its CEO Brian Armstrong are facing a new class action lawsuit alleging that investors were deceived into purchasing securities and that the company’s business model is illegal.

The suit, filed in U.S. District Court in Northern California in San Francisco on behalf of California and Florida plaintiffs Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi and Brett Maggard, alleges that Coinbase’s sales of digital assets were knowingly conducted. The company has violated state securities laws since its inception.

The lawsuit claims Solana (SOL), Polygon (MATIC), Near Protocol (NEAR), Decentraland (MANA), Algorand (ALGO), Uniswap (UNI), Tezos (XTZ), and Stellar Lumens (XLM) tokens. It is claimed that this is a security.

The plaintiffs allege that Coinbase acknowledged in its user agreement that it is a “stock broker” who creates digital asset securities that it sells on exchanges as investment contracts or other securities. They also claim that Coinbase Prime brokerage is a stockbroker.

Plaintiffs seek full rescission, statutory damages under state law, and injunctive relief through a jury trial. The lawsuit is similar to another class action lawsuit alleging consumer harm resulting from Coinbase’s sale of securities.

Coinbase argued that secondary cryptocurrency asset sales did not meet securities trading standards and disputed the validity of securities regulations.

Related: Coinbase’s Base Could Be the NVIDIA of DeFi

This new lawsuit is different from Coinbase’s highly publicized legal battle with the U.S. Securities and Exchange Commission (SEC), which raised questions about whether tokens sold on Coinbase should be classified as securities. Coinbase recently filed an interlocutory appeal in response to a judge’s decision to allow the case to proceed.

In a document submitted to the U.S. District Court for the Southern District of New York on April 26, John Deaton, a cryptocurrency attorney who is currently campaigning to oust Senator Elizabeth Warren, supported the motion for an interim appeal on Senator Warren’s behalf. An amicus brief was filed. 4,701 Coinbase customers.

Coinbase reported a strong rebound in the first quarter of 2024, driven by rising market performance and the launch of a spot Bitcoin (BTC) exchange-traded fund. The exchange reported total revenue of $1.6 billion, net income of $1.2 billion in the first quarter, and achieved $1 billion in adjusted earnings before interest, taxes, depreciation and amortization.

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