Coinbase slapped with class-action lawsuit in San Francisco

Cryptocurrency exchange Coinbase, and CEO Brian Armstrong, face a new class-action lawsuit.

A group of plaintiffs from California and Florida filed a lawsuit in the U.S. District Court for the Northern District of California, San Francisco Division.

The plaintiffs — Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi, and Brett Maggard — allege that Coinbase’s sales of digital assets have knowingly violated state securities laws since the company’s inception.

The lawsuit claims that several tokens sold on Coinbase, such as Solana (SOL), Polygon (MATIC), Near Protocol (NEAR), Decentraland (MANA), Algorand (ALGO), Uniswap (UNI), Tezos (XTZ), and Stellar Lumens (XLM), should be classified as securities.

According to the plaintiffs, Coinbase has admitted to being a “Securities Broker” in its user agreement, suggesting that the digital asset sales on the platform may qualify as investment contracts or other forms of securities.

The lawsuit also contends that Coinbase’s Prime brokerage functions as a securities broker.

The plaintiffs are seeking full rescission of these sales, statutory damages under state laws, and injunctive relief, with the matter proceeding to a jury trial. This lawsuit bears similarities to another class-action suit alleging consumer harm from Coinbase’s sale of securities.

Coinbase, however, has pushed back, arguing that secondary sales of crypto assets do not meet the criteria for securities transactions and questioning the applicability of securities regulations in this context.

This case is separate from Coinbase’s ongoing legal battle with the U.S. Securities and Exchange Commission (SEC), which also examines whether the tokens sold on Coinbase should be treated as securities. Recently, Coinbase filed an interlocutory appeal in response to a judge’s ruling allowing the SEC’s case to proceed.

Crypto.news reached out to Coinbase for comment but has not heard back.

Coinbase faces multiple lawsuits

In a separate development, pro-crypto lawyer John Deaton has stepped in to support Coinbase in its legal battle with the SEC by filing an amicus brief.

Deaton, known for his crypto advocacy and campaign against Massachusetts Senator Elizabeth Warren, is said to be providing his services pro bono.

His involvement coincides with Coinbase’s pushback against the SEC’s allegations and its efforts to gain clarity on regulatory matters, illustrating the ongoing tensions between cryptocurrency companies and financial regulators.

In June 2023, the SEC filed a lawsuit against Coinbase, accusing the cryptocurrency exchange of operating as an unregistered national securities exchange and broker. 

The SEC claims that Coinbase traded at least 13 crypto assets that should have been registered as securities, including tokens like Solana, Cardano, and Polygon.

Separately, hundreds of Coinbase customers have sued the company over its handling of the GYEN stablecoin, which they argue was far from stable.

This lawsuit alleges that Coinbase promoted and traded the GYEN token despite being aware of its high volatility, leading to significant losses for investors.

Coinbase’s crypto staking program has also come under regulatory scrutiny. The SEC alleges that the program operates as an unregistered investment contract and security. Several U.S. states have joined the SEC’s case, accusing Coinbase of violating securities laws in connection with its staking rewards program.

Coinbase has pushed back against the regulatory crackdown. Armstrong has expressed pride in representing the crypto industry in court and has called for clearer regulations.

However, legal experts caution that the SEC’s actions could limit options for U.S. investors and increase fees as platforms turn to less-regulated markets.

These lawsuits reflect the ongoing tensions between cryptocurrency companies and financial regulators over how to classify and oversee digital assets. As the SEC intensifies its crypto enforcement, further legal battles are likely for Coinbase and other major players in the industry.