Users sue Coinbase and seek damages of $5 million2 min read
Coinbase exchange is being sued for $5 million, according to a filed process in New York court last Friday (11). However, the lawsuit was not filed by the government or any competitor, but by three users of the platform.
According to users, Coinbase would be selling investment contracts on its platform. This modality is regulated and, therefore, can only be offered by those who have authorization.
Coinbase currently has over 70 cryptocurrencies listed on its platform, but no investment products. There was an attempt to launch a product that paid interest under cryptocurrencies, but the launch was canceled by the United States Securities and Exchange Commission (SEC).
Alleged sale of securities
According to users, Coinbase should have registered with the SEC as a national bond broker. Without registration, the company would be offering investments without SEC authorization, which would constitute a violation of US law.
In the lawsuit, the plaintiffs ask the company to stop selling the tokens on its platform entirely. Additionally, they claim that they must be compensated for any losses they suffered while trading cryptocurrencies.
The plaintiffs claim the sum of US$ 5 million, compensation that must be extended to other clients. However, they do not specify what damage they suffered.
Finally, the lawsuit also names CEO Brian Armstrong as a defendant, in addition to citing a recent speech by SEC Chairman Gary Gensler. In his speech, Gensler compared the cryptocurrency market to the Wild West, claiming it was a “lawless land”.
Gensler also reportedly suggested that exchanges like Coinbase were offering unlicensed bonds. In the US, bond brokerage status is typically earmarked for stock exchanges, and its adoption means having to meet a number of regulations.
In theory, the move could pose a threat to Coinbase’s business, as the company is already in fact under the SEC’s crosshairs. In September 2021, CriptoFácil revealed that Coinbase had plans to offer interest to users who leave USDC stablecoin in their accounts.
The service would work as a kind of savings account, remunerating stablecoin owners according to the balance they left on the platform. However, the SEC stated that the product was an investment, something Coinbase was not authorized to offer. Faced with the “threat”, the exchange determined the cancellation of the product.
In the case of the recently filed suit, it is unclear how far the case will go, but it is likely not to last long. In fact, these types of lawsuits almost never go to trial and serve more as a gamble by law firms.
In such cases, the process almost always ends in an agreement between the company and the plaintiffs. In April 2021, for example, at least seven such lawsuits were filed against cryptocurrency exchanges. All were rejected by the courts or withdrawn by the plaintiffs.