Coinbase Faces Lawsuit Over Alleged Misleading Statements and Risky Trading Practices

Coinbase Accused of Downplaying Bankruptcy Risks and Engaging in Proprietary Trading

A Coinbase shareholder has filed a lawsuit against the exchange, alleging that it failed to disclose critical risks associated with digital asset custody and engaged in proprietary trading without proper disclosure. The lawsuit, filed in a New Jersey federal court, claims that Coinbase misled investors about bankruptcy risks and downplayed the potential consequences of customer assets being considered part of its bankruptcy estate.

The plaintiff, Wenduo Guo, argues that while Coinbase positioned itself as a trusted custodian, it failed to provide adequate protection against risks associated with digital asset custody. The lawsuit points to the collapse of over 75 crypto exchanges before Coinbase went public in 2021, which left customers without their funds.

Allegations of Insider Trading and Misconduct

The lawsuit also accuses top Coinbase executives, including CEO Brian Armstrong, of profiting from insider knowledge and selling millions in stock while aware of the company’s vulnerabilities. Other executives named in the complaint include co-founder Fred Ehrsam, CFO Alesia Haas, COO Emilie Choi, Chief Legal Officer Paul Grewal, and Chief Accounting Officer Jennifer Jones.

The lawsuit seeks damages and governance reforms to prevent future misconduct and has demanded a trial by jury. As of press time, Coinbase has not issued an official statement.

Coinbase’s Ongoing Legal Battles

Coinbase is currently facing a class action in New York over alleged securities violations. The case, originally dismissed in 2023, was partially revived last year by an appeals court, allowing key accusations to move forward.

In addition to the New York case, Coinbase is also facing a lawsuit from customers in California and Florida over similar allegations, identifying tokens like Solana, Polygon, Near Protocol, Decentraland, and Algorand as unregistered securities.

SEC’s Ongoing Investigation

The SEC’s investigation into Coinbase has been ongoing for nearly two years, but a recent filing suggests that a resolution may be near. The SEC requested an additional 28 days to review Coinbase’s appeal, noting that the newly established crypto task force could play a role in bringing the legal dispute to an end.

Impact on Coinbase’s Stock Performance

Despite the ongoing legal battles, Coinbase reported stronger-than-expected Q4 earnings in 2024, with revenue surging 138% from 2023. However, the lawsuit and ongoing regulatory pressures could have a significant impact on the company’s stock performance in the future.

For more news on the cryptocurrency market and regulatory updates, visit Global Crypto News.

Post Views: 2