Federal Judge Allows Narrowed Lawsuit Against Coinbase to Proceed
In a significant legal development, a federal judge has permitted Coinbase (COIN) shareholders to advance with a streamlined lawsuit against the prominent U.S. cryptocurrency exchange. The lawsuit accuses Coinbase of hiding critical “business risks,” specifically the potential for litigation from the Securities and Exchange Commission (SEC).
Allegations Against Coinbase
U.S. District Judge Brian Martinotti, presiding in Newark, New Jersey, responded to claims that Coinbase misled investors about its regulatory position and the security of their assets. The judge dismissed motions by Coinbase’s executives and directors to throw out the lawsuit entirely.
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The plaintiffs argue that Coinbase deceived them regarding the likelihood of an SEC lawsuit over its operations as an unregistered securities exchange, giving the impression that such a risk was negligible. They also assert that Coinbase did not adequately inform them about the risks tied to asset loss if the company were to go bankrupt. Judge Martinotti highlighted that while claims cannot be based solely on “group pleading,” they can advance if they offer detailed allegations against specific individuals. He stated, “Where plaintiffs have appropriately provided defendant-by-defendant particularity, the claims must remain.”
Shareholder Silence Amid Legal Proceedings
The 59-page ruling does not specify which statements were excluded due to the group pleading concern, as neither side pinpointed these during their arguments. As noted by Reuters, Martinotti remarked in a footnote, “Judges are not like pigs, hunting for truffles buried in briefs,” stressing the necessity for precise legal documentation.
This class-action lawsuit, led by the Swedish pension fund Sjunde AP-Fonden, includes Coinbase shareholders from April 14, 2021, to June 5, 2023. In a related development, the SEC concluded its lawsuit against Coinbase, signaling a shift in regulatory scrutiny as the cryptocurrency industry finds more clarity under the previous Trump administration.
Other cryptocurrency platforms like Uniswap, Robinhood, and Kraken have seen their lawsuits dismissed by regulators this year. The appointment of Paul Atkins as the new chair during Trump’s term has been seen as a positive move, providing clearer regulatory frameworks and fostering collaboration to advance cryptocurrency adoption in the U.S.
As of now, neither Coinbase nor the shareholders’ legal teams have publicly responded to the judge’s decision. It remains uncertain what steps the exchange will take or if its executives will offer an official statement.
Despite the legal proceedings, COIN’s stock, traded on Nasdaq, saw a significant increase, reaching nearly $347 on Wednesday, reflecting a gain of approximately 12%. This surge is part of the broader recovery in the crypto market, led by Bitcoin (BTC), which is nearing its historic highs.
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