Coinbase Faces Shareholder Lawsuit Over SEC Risks By Reuters

By Jonathan Stempel

(Reuters) – A federal judge has denied Coinbase’s (NASDAQ: ) request to dismiss a class-action lawsuit brought by shareholders who accused the operator of the largest U.S. cryptocurrency exchange of downplaying the likelihood that it would be sued by the US Securities and Exchange Commission.

U.S. District Judge Brian Martinotti in Newark, New Jersey, ruled Thursday, 15 months after the SEC’s June 6, 2023, civil lawsuit accusing Coinbase of operating an unregistered securities exchange. Coinbase’s stock price fell 12% that day.

Martinotti said shareholders adequately argued that Coinbase and top executives misled them by portraying “a favorable picture of the unlikelihood of the SEC filing an enforcement action by repeatedly emphasizing that the cryptoassets they were listing were not securities “.

In his 50-page ruling, Martinotti said shareholders could also pursue some claims that Coinbase misrepresented the risk that customers would lose assets stored at the company if the company filed for bankruptcy.

Coinbase’s stock price fell more than 26% on May 11, 2022, the day after it added disclosures and reported a larger-than-expected drop in quarterly revenue.

The judge dismissed claims that Coinbase falsely denied engaging in proprietary trading. Coinbase CEO Brian Armstrong and several other executives are also indicted.

Coinbase said in a statement on Friday: “We remain confident that we are correct on the facts and the law and look forward to proving the rest of our case.”

Attorneys for the shareholders did not immediately respond to requests for comment.

In March, a federal judge in Manhattan denied Coinbase’s request to dismiss the SEC lawsuit.

The proposed class action led by Swedish pension fund Sjunde AP-Fonden covers Coinbase shareholders from April 14, 2021 to June 5, 2023.

The case is In re Coinbase Global Inc. Securities Litigation, U.S. District Court, District of New Jersey, no. 22-04915.