If you’ve never heard of Coinbase, get ready for an action-packed story about a tech bro and a forex trader who met on Reddit and their very many lawsuits.

Like all good stories, we have to start at the beginning.

Coinbase Founding and Early Days

Coinbase was founded in June 2012 by Brian Armstrong and Fred Ehrsam. Armstrong, a former Airbnb engineer, had the vision of creating a platform where people could securely buy and sell Bitcoin and he could buy one of the most expensive homes in Bel Air for $133 million. He teamed up with Ehrsam, who brought his experience as a trader at Goldman Sachs and eventually got Duke University to invest. Together they co-founded Coinbase.

The company was accepted into the Y Combinator startup incubator in 2012. In May 2013, Coinbase secured $5 million in Series A funding from Union Square Ventures, led by Fred Wilson. In December 2013, Coinbase raised $25 million in Series B funding. This round saw investments from notable firms including Andreessen Horowitz, Union Square Ventures, and Ribbit Capital. Long story short, they raised a lot of money. And then they went public.

On its first day of trading, Coinbase’s stock opened at $381, giving the company a valuation of approximately $86 billion, making it one of the most valuable U.S. companies to go public in recent history.

Lawsuits and Legal Challenges

Coinbase has faced several lawsuits, including one pretty important one from the SEC alleging that the platform sold unregistered securities. This case is ongoing. In response to being notified the company would face enforcement action from the agency, the company’s CEO and the General Counsel made a long video among other publicity stunts.

There are so many lawsuits, with Coinbase at times the plaintiff though mostly the defendent, it can be hard to keep them all straight. Most recently, Coinbase sued the SEC and FDIC. That’s a choice.

Some lawsuits have claimed that Coinbase failed to properly secure user accounts, leading to unauthorized access and theft of funds. The company that bills itself as the “most trusted crypto exchange” has problems with consistent service.

Class Action Lawsuits

On May 3, 2024, Coinbase Global, Inc. and its subsidiaries were hit with a new class action lawsuit for allegedly violating securities laws and using deceptive business practices. A different class action lawsuit against Coinbase was recently revived by the 2nd U.S. Circuit Court of Appeals.

This new class action lawsuit is crucial in the broader discussion about how cryptocurrencies and digital assets are regulated. It could establish important precedents affecting how digital currencies are viewed under securities laws. This is happening at a time when global regulatory scrutiny is increasing, making the outcome of this case especially significant.

Allegations Against Coinbase

The lawsuit accuses Coinbase of operating in a shady part of the crypto world and not fully following legal guidelines. It alleges the company misled investors by claiming it was not selling securities while internally acknowledging its role as a securities broker. The lawsuit claims that Coinbase violated laws by selling unregistered digital asset securities and failing to register as a broker or dealer, misleading investors into believing they were engaging in lawful activities.

Demands from the Plaintiffs

In the latest class action lawsuit, the plaintiffs have made several key requests to address their issues with Coinbase. These requests aim to recover their losses and stop any further alleged wrongdoings by the cryptocurrency exchange. Here’s what the plaintiffs are asking for:

Rescission of Investment

The plaintiffs are primarily asking for the rescission of their investments, which means they are requesting a full refund of the money they invested. This demand is based on the premise that the investments were made under conditions that the plaintiffs believe were misrepresented or legally non-compliant. By seeking rescission, the plaintiffs aim to undo their investment transactions and recover their initial capital.

Statutory Damages

In addition to the return of their investments, the plaintiffs are seeking statutory damages. These are specific amounts of compensation mandated by state law, designed to penalize the defendant for the alleged wrongdoings and provide monetary relief to the plaintiffs. Statutory damages can vary depending on the state and the specific laws that apply to the case.

Injunctive Relief

The plaintiffs are also requesting injunctive relief. This legal remedy involves the court issuing orders to prevent Coinbase from continuing its alleged violations. Injunctive relief can take various forms, such as orders to cease certain business practices, implement corrective measures, or comply with specific regulatory requirements. The goal of this demand is to ensure that the alleged harmful practices are halted to prevent further damage to the plaintiffs and other potential investors.

These demands reflect the plaintiffs’ broader strategy to not only seek financial restitution but also enforce regulatory compliance and ethical practices within the cryptocurrency industry. By addressing both monetary and non-monetary aspects, the plaintiffs aim to secure a comprehensive resolution to their grievances against Coinbase.

Implications for the Crypto Industry

This lawsuit could significantly impact the cryptocurrency industry by raising questions about compliance with securities laws among crypto platforms. This story is by no means finished.

If you’re involved in the crypto market, this case might affect how digital assets are regulated and operated in the future.

If you liked this post, don’t miss the insightful guest post by author Jake Donoghue on Consensys!

Categories: For Investors