Coinbase facing class-action lawsuit amidst SEC investigation Coinbase facing class-action lawsuit amidst SEC investigation
Two law firms in New York have filed a lawsuit against Coinbase for allegedly misleading information about the custody of customers' assets and trading of unregistered securities.
2 min read
Updated: Aug. 5, 2022 at 6:42 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Coinbase is faced with more legal battles as two law firms have filed a lawsuit against the company amidst an ongoing investigation by the SEC.
On August 4, two New York-based law firms Bragar Eagel & Squire and Pomerantz LLP filed a class-action suit against Coinbase Global in the US District Court of New Jersey.
The lawsuit alleges that Coinbase misled the public about its business activities and compliance policy as it relates to claims on customers’ assets in the case of bankruptcy and issues of trading unregistered securities.
The firms initiated the case on behalf of all parties, who acquired Coinbase shares between April 14, 2021, and July 26, 2022, seeking to recover damages caused by Coinbase’s alleged misleading statements.
The Case against Coinbase
Specifically, Coinbase is said to have provided false or incomplete information on the custody of customers’ assets and issues relating to trading securities.
The law firms, citing Coinbase’s quarterly report for Q1 2022, claim that the exchange did not properly communicate to the customers about the eventual claim on their assets in the case of bankruptcy. Coinbase stated in the report:
“Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such 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 sooner, and we didn’t communicate proactively when this risk disclosure was added.
As a result, the Coinbase Class A common stock fell by 26.4% to close at $53.72 per share on May 11, 2022, leading to more loss for its investors.
The case against Coinbase also included the ongoing probe by the SEC. The SEC is investigating if Americans were improperly allowed to trade unregistered securities on the exchange.
SEC still investigating Coinbase
Coinbase has been under investigation by the SEC over allegations that it listed unregistered securities on its platform. The SEC opened the probe following an insider trading case against a former Coinbase employee Ishan Wahi.
According to the SEC, 9 out of the 25 crypto assets Ishan traded while at the exchange are securities. Coinbase, however, has refuted the claims stating it does not list securities. Coinbase Chief Legal Officer Paul Grewal wrote a blog post stating:
“Coinbase does not list securities on its platform. Period.”
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Author 
Christian Nwobodo
Christian is a crypto-curious nerd who loves to investigate how protocols work under the hood. Christian is interested in DeFi protocol research, token economics, and on-chain analytics.
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Coinbase
Coinbase is a digital currency exchange and wallet service that allows individuals to buy, sell, and store digital currencies, such as Bitcoin, Ethereum, and Litecoin.
Brian Armstrong, co-founder and CEO of Coinbase, stands at the forefront of the digital currency revolution.
