Six Coinbase customers claim the exchange is violating securities laws in new lawsuit

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Updated: May. 5, 2024 at 4:21 pm UTC

Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.

Six Coinbase customers filed a new class-action lawsuit against crypto exchange Coinbase Global, two subsidiaries — Coinbase, Inc. and Coinbase Asset Management, LLC. — and its CEO, Brian Armstrong, on May 5.

The lawsuit alleges that the digital assets listed on Coinbase are securities. This includes Solana (SOL), Polygon (MATIC), Near Protocol (NEAR), Decentraland (MANA), Algorand (ALGO), Uniswap (UNI), Tezos (XTZ), and Stellar (XLM). The plaintiffs argue that these tokens constitute 'investment contracts,' subject to state securities laws.

Coinbase itself admits to being a "Securities Broker" in its user agreement, according to the lawsuit. Therefore, the defendants "knowingly, intentionally, and repeatedly violated state securities laws" and deceived its users, the lawsuit filed with the U.S. District Court for the Northern District of California, San Francisco Division alleges.

The lawsuit further notes:

"Its (Coinbase's) entire business model has been built upon a lie and a dream: the lie is that "we do not sell securities," and the dream is that, knowing it would eventually be caught in the lie, "it is better to ask for forgiveness than permission."

The lawsuit was filed by plaintiffs Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi and Brett Maggard from California and Florida. The plaintiffs are seeking full recission, meaning a cancellation of their purchase agreements, along with statutory damages under state law and injunctive relief.

Coinbase has already been battling a lawsuit by the U.S. Securities and Exchange Commission (SEC) which alleges the exchange violated securities laws. Coinbase argues that secondary sale of crypto assets do not constitute securities. The exchange filed an interlocutory appeal after a judge allowed the SEC lawsuit to proceed.

Late last month, pro-XRP lawyer John Deaton filed an amicus brief in support of a motion for interlocutory appeal on behalf of 4,701 Coinbase customers. Deaton is currently running an election campaign against Senator Elizabeth Warren.

Earlier this week, Coinbase reported a surge in its Q1 revenue, which surged past expectations to $1.64 billion. The exchange's transaction revenue nearly tripled to $1.07 billion, with consumer transaction revenue alone soaring to $935 million, marking a doubling compared to the previous year.

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