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Coinbase might be forced to part with up to $5 million if it loses a lawsuit alleging security law violations.
The plaintiffs are asking for $5million on behalf of themselves and everyone else who made losses from unregulated assets bought from Coinbase, Metaworldgambler.com reported.
Three traders are camping in the federal court seeking compensation from Coinbase Global, Inc the largest US-based crypto exchange. An outcry registered in New York’s Southern District Court states that Coinbase has been selling at least 79 unregistered digital coins to the public. Coinbase is yet to issue an official statement regarding these allegations.
The crypto exchange which has been at the front burner of blockchain regulations in the US is not new to controversy. In 2021, users slammed this crypto provider for what they termed as carelessness and poor customer support after some of them lost their investment to hackers. In the same year, a federal judge issued a warrant to redeem over $600,000 worth of BTC from Huobi Global wallet on grounds that it was part of a cumulative $11.6 million stolen from a Coinbase user in just under 10 minutes.
The litigants listed several crypto enthusiasts’ favorite coins as unregistered securities in the current $5 million lawsuit. Polkadot (DOT), Decentraland (MANA), Dogecoin (DOGE), and the famous Shiba Inu (SHIB), could not be left out. Bitcoin (BTC) and Ethereum (ETH) were not listed among the 79 alleged decentralized securities. Through the Director of Corporate Finance, William Hinman, the SEC, in 2018, suggested that they would not categorize Bitcoin and Ethereum as securities due to their decentralized nature.
The Coinbase users in this lawsuit claimed that the exchange is in violation of crucial state laws by listing and selling unlicensed assets and that they should be compelled to:
- Compensate all users who have incurred losses while investing in these unregulated assets. This includes losses made directly from trading and any other unspecified damages that may be justified in the federal court.
- Delist and stop selling all the 79 virtual assets until they are properly regulated by the US government.
All this cloud might sound like a big threat to Coinbase’s reputation and business, but we cannot certainly predict the outcome considering that similar lawsuits have died off in the past. 2021 saw over five such class action cases being thrown out of the courts. In some cases, the plaintiffs withdrew the lawsuits in unclear circumstances. There is always a law firm behind such class action lawsuits. All it takes to launch these cases is someone willing to take the role of a lead plaintiff.
History has proven that these lawsuits hardly get to the trial stage, so they simply are a gamble by hungry law firms hoping to get a payout to withdraw the case. Where it plays out according to the book, such law firms negotiate for hefty settlements on their behalf while the customers go home with just a small slice of the cake.
This lawsuit points out some of the legal exposures that crypto exchanges face by deciding to list piles of new cryptos without scrutinizing their regulatory status. If the courts hold up this case, we are likely to see dozens of crypto exchanges delist many new tokens to avoid falling into a similar trap.
