Coinbase, a leading cryptocurrency exchange, and its CEO, Brian Armstrong, are under legal scrutiny with a class-action lawsuit. The suit alleges that the company engaged in illegal securities sales and deceived investors.
Allegations of Illegal Securities Sales
The lawsuit, filed in the United States District Court for the Northern District of California San Francisco Division, by plaintiffs from California and Florida, claims that Coinbase’s digital asset sales violated state securities laws from its inception.
The lawsuit alleges that several digital assets offered on Coinbase are securities. Some of those listed include Solana’s SOL, Polygon’s MATIC, Algorand’s ALGO, Uniswap’s UNI, Tezos’s XTZ, Near Protocol’s NEAR, Decentraland’s MANA, and Stellar Lumens’ XLM.
The plaintiffs are claiming that Coinbase’s user agreement indicates that it is a “Securities Broker”. This suggests that the sale of these digital assets could be considered investment contracts or other forms of securities.
Furthermore, they claim that Coinbase Prime brokerage operates as a securities broker. The lawsuit prays to the court to include full revocation of digital asset sales, statutory damages under state law, and injunctive relief through a jury trial.
Coinbase’s Legal Defense
Coinbase, in its defense, insists that its digital asset sales do not meet the criteria for securities transactions, as such the allegations should not stand. The company contests the relevance of securities regulations to its business model, maintaining that secondary crypto asset sales should not be subject to securities laws.
Despite the legal troubles, Coinbase reported a strong revenue rebound in the first quarter of 2024 as reported by BGEcrypto. The earnings bolstered by improved market conditions and the launch of spot Bitcoin exchange-traded funds, however, did not impact its bearish stocks.
The company said its net income comes in at $1.17 billion or $4.40 per share. Coinbase, after the Bitcoin halving, engaged in a mega bonanza giveaway to reward community members. The reward program will end on May 20.
