In a recent development, six Coinbase customers have taken legal action against the cryptocurrency exchange Coinbase Global and its subsidiaries, Coinbase, Inc. and Coinbase Asset Management, LLC. The lawsuit also names CEO Brian Armstrong as a defendant. The core allegation made by the plaintiffs is that the digital assets listed on Coinbase should be classified as securities. This includes popular tokens such as Solana, Polygon, Near Protocol, Decentraland, Algorand, Uniswap, Tezos, and Stellar.
The crux of the lawsuit revolves around the argument that these tokens meet the criteria of ‘investment contracts,’ making them subject to state securities laws. It is noteworthy that Coinbase itself acknowledges being a “Securities Broker” in its user agreement. This admission by the exchange is cited as evidence that the defendants knowingly and intentionally violated state securities laws and misled their users.
The lawsuit alleges that Coinbase’s entire business model is founded on deception, with the company initially denying that it sells securities and later opting to seek forgiveness instead of permission. The plaintiffs, comprising Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi, and Brett Maggard, are seeking full recission of their purchase agreements, along with statutory damages and injunctive relief under state law.
Coinbase is already embroiled in a separate legal battle with the U.S. Securities and Exchange Commission (SEC) over alleged violations of securities laws. The exchange contests the SEC’s assertion that the secondary sale of crypto assets should be classified as securities. Following a ruling allowing the SEC lawsuit to proceed, Coinbase has pursued an interlocutory appeal to challenge the decision.
In a show of solidarity, pro-XRP attorney John Deaton has filed an amicus brief supporting a motion for interlocutory appeal on behalf of thousands of Coinbase customers. Interestingly, Deaton is concurrently involved in an election campaign against Senator Elizabeth Warren. Despite the legal challenges, Coinbase recently reported a substantial increase in revenue for the first quarter, exceeding analyst expectations. The exchange’s transaction revenue saw a significant spike, with consumer transaction revenue alone doubling compared to the previous year, reaching $935 million.
The class-action lawsuit against Coinbase underscores the complexities and legal uncertainties that surround the classification of digital assets as securities. The outcome of this legal battle will not only impact Coinbase but is also likely to have broader implications for the cryptocurrency industry as a whole. As regulatory scrutiny intensifies, market participants must navigate these legal challenges and strive for transparency and compliance to maintain investor trust and confidence.
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