Coinbase Global Inc. (NASDAQ: COIN), the largest U.S. cryptocurrency exchange, is in a sticky situation after the federal judge overseeing the class action lawsuit filed by its shareholders ruled that the suit will proceed. The judge made a ruling that the allegations that Coinbase downplayed the likelihood that the U.S. Securities and Commission (SEC) would sue them, were credible. Coinbase was sued in June 2023 by the SEC for violating the U.S federal securities law.
The judge’s decision not to dismiss the suit has stunned the world of cryptocurrency, with many wondering about Coinbase’s transparency with its investors.
The legal drama began in 2022 when a group of Coinbase shareholders filed a lawsuit against the company alleging that they were misled and lied to about the potential action of the SEC. They argued that Coinbase publicly made statements about the risk of being classified as unregistered that were overly optimistic. For this reason, U.S. District Judge Brian Martinotti of the District of New Jersey wasn’t going to let the company off the hook easily.
Martinotti ruled that the shareholders had a valid case and allowed some parts of the suit to proceed. In particular, the judge said that Coinbase acted negligently by painting an overly optimistic picture, thus lying to the shareholders. While Martinotti allowed the lawsuit to move forward, some claims were dismissed. For instance, claims regarding Coinbase’s alleged involvement in proprietary trading and sharing statements that were misleading concerning customers’ assets in the event of bankruptcy were dismissed. In short, the judge gave the company a partial win in the suit by trimming down the allegations brought against it. However, he left the door open for more claims with enough backup regarding SEC risks.
This is nothing new. Coinbase has faced other legal issues. In March this year, another federal judge rejected Coinbase’s request to dismiss the SEC lawsuit. In other words, the battle is not yet over.
So, what does this mean for Coinbase? The company is preparing for a lengthy court battle, and company officials believe they will prevail. According to the company’s spokespersons, they are confident that they are right on the facts and the law and they’re looking forward to proving their case in court.
For investors, this lawsuit is eye opening. The stakes are high, especially now that the stock price fell when the suit was filed by the SEC. As the suit moves forward, everyone will be watching closely to see whether Coinbase comes out on top or whether the suit will put a dent in the company.
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