Judge Rules Against Coinbase in Shareholder Lawsuit Over SEC Risks

A U.S. District Court judge has partially denied Coinbase’s request to dismiss a class-action lawsuit from shareholders. Initially filed in 2022, the lawsuit accuses the major cryptocurrency exchange of misleading investors about the potential risk of legal action from the U.S. Securities and Exchange Commission (SEC). While some claims were dismissed, the court ruled that Coinbase must face specific allegations, particularly regarding its representations about regulatory risks.

Coinbase Accused of Misleading Shareholders on SEC Lawsuit Risk

The lawsuit centres on claims from a group of Coinbase shareholders, who allege the exchange made “materially false and misleading statements” about its operations and the likelihood of regulatory action by the SEC. U.S. District Judge Brian Martinotti ruled last week that the plaintiffs have a plausible case in their accusations that Coinbase acted negligently in communicating the potential risk of SEC enforcement. However, the judge also dismissed a number of the other claims made in the suit.

According to court documents, the shareholders argue that Coinbase repeatedly downplayed the risk of SEC action by emphasizing that the cryptocurrencies listed on the platform were not securities. This representation allegedly painted an overly optimistic and misleading picture for investors, even though the SEC eventually sued Coinbase in June 2023, accusing the exchange of violating U.S. federal securities laws.

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Judge Partially Denies Coinbase’s Motion to Dismiss

In the most recent court filing, Judge Martinotti explained that while Coinbase’s motion to dismiss was partly granted, many of the claims were allowed to proceed. Specifically, the court found that the plaintiffs had sufficiently alleged that Coinbase misleadingly suggested the SEC would not pursue legal action. However, the judge dismissed claims related to certain statements made by Coinbase about customer trust and bankruptcy protections.

“The Court finds Plaintiffs have adequately alleged that Defendants misleadingly described a favourable picture of the improbability that the SEC would file an enforcement action,” the ruling stated. The judge also noted that while Coinbase did not fully succeed in dismissing the case, the plaintiffs still face challenges in proving their claims in court.

Coinbase Faces SEC Lawsuit and Continued Legal Battles

The SEC’s lawsuit against Coinbase was filed in June 2023 and is ongoing. In that case, the judge ruled that the SEC presented plausible arguments that can be explored in further legal proceedings, rejecting Coinbase’s attempt to dismiss the SEC’s case. The class-action lawsuit, which dates back to 2021, was modified in July 2023, and Coinbase has continued to fight the claims, filing new legal documents in December 2023.

A spokesperson for Coinbase commented on the ruling, saying: “The Court agreed that a significant portion of the plaintiff’s claims should be dismissed. It’s important to note that the remaining pieces can move forward because this motion to dismiss works: the court draws inferences based on the plaintiff’s allegations rather than the reality of what happened. We remain confident that we are right on the facts and the law and look forward to proving the rest of our case. We appreciate the court’s careful consideration.