Just a week after Coinbase reported a spike in its first quarter revenue, the exchange has found itself embroiled in a lawsuit. A group of six users of the exchange have alleged in a lawsuit that Coinbase, under its CEO Brian Armstrong, are violating state securities laws and deceiving users by claiming that the exchange does not sell crypto tokens as securities. In the US, securities are assets that are invested in with the expectation to churn a gain through the efforts of some other entity but the investors.
The lawsuit against Coinbase has been filed in the United States District Court for the Northern District of California San Francisco Division. The document has claimed that Solana, Polygon, Near Protocol, Decentraland, Algorand, Uniswap, Tezos, and Stellar are listed on the exchange as Securities.
“Coinbase has been a part of a shadowy crypto ecosystem operating just outside of the law since formed over 10 years ago. Its entire business model has been built upon a lie and a dream: the lie is that “we do not sell securities,” and the dream is that, knowing it would eventually be caught in the lie, ‘it is better to ask for forgiveness than permission’,” the plaintiffs have said in their lawsuit.
In drafting its user agreement with the investors and other customers, the lawsuit claims, Coinbase specifically identifies the crypto assets it sells as ‘securities’ despite which it has never registered itself, its people, or the crypto securities it sells. The document also highlights that Coinbase, in its user agreement admits that it is a ‘Securities Broker’.
On the basis of these allegations levied against Coinbase, the plaintiffs are seeking an injunctive relief through a jury trial alongside a full rescission, CoinTelegraph said in its report. As per CoinTelegraph, the exchange has said that the sales of secondary crypto assets do not meet securities transactions criteria. The exchange, meanwhile, has not released an official statement commenting on this lawsuit.
This is not the first time, that Coinbase has been dragged under the legal scanner for allegedly violating US’ securities laws through unlawful business operations. In January this year, a federal judge in Manhattan grilled Coinbase and the US securities regulator about their divergent views on whether and when digital assets are securities. The SEC had filed a lawsuit against Coinbase last year, commenting on which the exchange had urged the US court to dismiss SEC’s lawsuit.
Despite regular run-ins with the authorities, Coinbase managed to churn profits in Q1 2024. The exchange has claimed to have clocked $1.6 billion (roughly Rs. 13,365 crore) in total revenue and $1.2 billion (roughly Rs. 10,023 crore) in net income for 2024 Q1. The exchange additionally reported $1 billion (roughly Rs. 7,500 crore) in adjusted earnings before interest, taxes, depreciation and amortisation.