Coinbase is facing fresh legal trouble as a shareholder has filed a lawsuit accusing the company of misleading investors about bankruptcy risks and engaging in undisclosed trading practices.
The lawsuit, filed on February 18 in a New Jersey federal court by plaintiff Wenduo Guo, claims Coinbase failed to properly disclose that customer assets could be classified as part of its bankruptcy estate. If true, this would mean retail users could be treated as unsecured creditors, putting their funds at risk in case of insolvency.
Guo argues that while Coinbase marketed itself as a secure custodian, it downplayed significant risks tied to its operations. The complaint points to the collapse of over 75 crypto exchanges before Coinbase’s 2021 IPO, highlighting the lack of investor protections. Additionally, the lawsuit alleges Coinbase engaged in proprietary trading—using corporate funds to trade crypto—without properly informing investors.
The lawsuit also targets key Coinbase executives, including CEO Brian Armstrong, CFO Alesia Haas, and co-founder Fred Ehrsam. It claims they, along with other high-ranking officials and board members, profited from insider knowledge by selling millions in company stock while aware of Coinbase’s vulnerabilities.
This lawsuit adds to Coinbase’s mounting legal challenges, which include a revived class-action case in New York, where customers claim the exchange illegally sold unregistered securities. A U.S. judge recently ruled that this case, initially dismissed in 2023, could move forward. Additionally, customers in California and Florida filed a lawsuit in May 2024, alleging that Coinbase and Brian Armstrong facilitated the sale of unregistered securities, naming tokens such as Solana, Polygon, Near Protocol, Decentraland, and Algorand.
Meanwhile, Coinbase’s legal battle with the U.S. Securities and Exchange Commission (SEC), which has stretched for nearly two years, could soon reach a turning point. On February 14, the SEC requested an additional 28 days to review Coinbase’s appeal, claiming that its newly formed crypto task force’s work would affect the substance of the case.
READ MORE: U.S. SEC Launches New Crypto Task Force to Establish Clear Regulatory Framework
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