Coinbase faces further legal battles as two law firms file a lawsuit against the company in an ongoing SEC investigation.
The lawsuit alleges that Coinbase misled the public about its business activities and compliance policy with respect to claims against client assets in the event of bankruptcy and non-registered securities trading issues.
The companies brought the case on behalf of all parties, who acquired Coinbase stock between April 14, 2021 and July 26, 2022, seeking to recover damages caused by Coinbase’s alleged misrepresentations.
The case against Coinbase
Specifically, Coinbase allegedly provided false or incomplete information about custody of customer assets and securities trading issues.
The law firms, citing Coinbase’s quarterly report for the first quarter of 2022, claim that the exchange failed to properly communicate to customers the potential claim on their assets in the event of bankruptcy. Coinbase said in the report:
“Because crypto assets held in custody may be considered the property of a bankrupt estate, in the event of bankruptcy, crypto assets held by us in custody on behalf of our clients could be subject to legal proceedings. bankruptcy and these customers could be treated as our general unsecured creditors.
Following the disclosure, Coinbase CEO Brian Armstrong said in a tweet:
“We should have updated our retail terms earlier, and we did not proactively communicate when this risk disclosure was added.
As a result, Coinbase’s Class A common stock fell 26.4% to close at $53.72 per share on May 11, 2022, leading to more losses for its investors.
The case against Coinbase also included the ongoing SEC investigation. The SEC is investigating whether Americans were wrongly allowed to trade unregistered securities on exchanges.
The SEC is still investigating Coinbase
Coinbase has been under SEC investigation following allegations that he listed unregistered titles on his platform. The SEC opened the investigation following a insider trading case against a former Coinbase employee, Ishan Wahi.
According to the SEC, 9 of the 25 crypto assets Ishan has traded on the exchange are securities. Coinbase, however, has refuted claims that it does not list securities. Coinbase Chief Legal Officer Paul Grewal wrote a blog post indicating:
“Coinbase does not list securities on its platform. Period.”