Recently, a federal judge rejected Coinbase’s motion to dismiss a proposed class action lawsuit by shareholders. The lawsuit alleges that the largest US crypto exchange downplayed the likelihood of being sued by the US Securities and Exchange Commission (SEC). The judge ruled that shareholders had adequately alleged that Coinbase and its top executives defrauded them by presenting a misleading picture of the improbability of an SEC enforcement action.
The lawsuit was filed on May 10, 2023, by plaintiffs Sjunde AP-Fonden, Ryan R. Firth, and Zvia Steinmetz. This legal action came 15 months after the SEC’s civil lawsuit against Coinbase for allegedly operating an unregistered securities exchange on June 6, 2023. The ruling allows shareholders to pursue claims that Coinbase misrepresented the risk of customers losing assets in case of bankruptcy.
In response to the ruling, Coinbase stated that they remain confident in their position and look forward to proving their case. The SEC had sued Coinbase for multiple alleged securities law violations, which led to a 22% drop in COIN shares. This prompted various class action lawsuits by investors who felt defrauded by the exchange.
Despite Coinbase’s efforts to have the SEC lawsuit dismissed, the District Court of New York allowed the legal enforcement to proceed. This was seen as a major win for the regulator against Coinbase. Following these developments, British bank Barclays upgraded Coinbase’s shares from underweight to equal weight, but adjusted the price target for COIN shares downwards.
The class action lawsuit against Coinbase highlights the importance of transparency and honesty in the cryptocurrency industry. Shareholders have a right to accurate information about the risks involved in investing in companies like Coinbase. The ongoing legal battle between Coinbase and the SEC will continue to have implications for the crypto market and investor trust. It is essential for companies in the crypto space to prioritize compliance and regulatory adherence to maintain their credibility and protect their investors.
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