A federal judge has granted Coinbase (COIN) shareholders the opportunity to move forward with a narrowed lawsuit against the US-based cryptocurrency exchange, alleging that the company concealed alleged “business risks,” including the possibility of being sued by the Securities and Exchange Commission (SEC).
Claims Against Coinbase
The ruling, issued by US District Judge Brian Martinotti in Newark, New Jersey, comes as a response to claims that Coinbase misled investors regarding its regulatory standing and the safety of their assets. The Judge rejected requests from the crypto exchange executives and directors to dismiss the lawsuit entirely.
The shareholders contend that the company misrepresented the likelihood of an SEC lawsuit regarding its operations as an unregistered securities exchange, leading them to believe that such an action was improbable.
They also argue that Coinbase failed to disclose the alleged risks associated with asset loss in the event of a bankruptcy filing. The judge pointed out that while shareholders could not base their claims solely on “group pleading,” they can pursue claims that provide detailed allegations against specific parties.
Martinotti emphasized that claims grounded in particularized allegations must be allowed to proceed, stating, “Where plaintiffs have appropriately provided defendant-by-defendant particularity, the claims must remain.”
Shareholder Legal Teams Remain Silent
The ruling, which spans 59 pages, does not outline which specific statements were dismissed due to the group pleading issue, as neither party identified those in their arguments.
As Reuters reported, Martinotti noted in a footnote that “Judges are not like pigs, hunting for truffles buried in briefs,” highlighting the importance of clarity in legal documentation.
The proposed class action suit is spearheaded by the Swedish pension fund Sjunde AP-Fonden and encompasses Coinbase shareholders from April 14, 2021, to June 5, 2023.
In February, the Securities and Exchange Commission had concluded its lawsuit against the exchange as regulatory scrutiny on the cryptocurrency industry began to ease under the Trump administration.
Others, such as Uniswap, Robinhood, and Kraken, have also had their lawsuits dismissed by the regulator this year. Trump’s appointment of Paul Atkins as the new chair has been a positive development, providing clear regulatory frameworks and collaborations to boost the adoption and usage of cryptocurrency in the country.
At the time of writing, neither Coinbase nor its shareholders’ legal representatives have commented on the judge’s ruling. It remains to be seen what actions the firm will take and whether its executives will issue an official comment.
Despite the judge’s decision, the exchange’s stock, which trades on the Nasdaq under the ticker symbol COIN, surged towards $347 on Wednesday, marking gains of almost 12%. This aligns with the broader crypto market recovery, led by Bitcoin (BTC), which is approaching record highs.
Featured image from DALL-E, chart from TradingView.com
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