A federal judge said Coinbase shareholders may pursue a narrowed lawsuit accusing the largest U.S. cryptocurrency exchange operator of concealing business risks, including whether it would be sued by the Securities and Exchange Commission.
In a Tuesday night decision, U.S. District Judge Brian Martinotti in Newark, New Jersey rejected requests by Coinbase, top executives and directors for a full dismissal of claims based on dozens of statements made over two years in regulatory filings, earnings calls, blog posts and tweets.
Shareholders said Coinbase defrauded them into believing it was improbable the SEC would accuse it in court of operating an unregistered securities exchange, and misrepresented the risk they could lose assets if Coinbase filed for bankruptcy.
Martinotti said shareholders cannot pursue claims based solely on “group pleading,” where statements in group-published documents such as press releases do not suggest any particular defendant intended to commit fraud.
“Where plaintiffs have appropriately provided defendant-by-defendant particularity, the claims must remain,” he added.
Martinotti’s 59-page decision does not say which statements were dismissed, because the parties did not identify which may constitute group pleading. “Judges are not like pigs, hunting for truffles buried in briefs,” the judge said in a footnote.
A spokeswoman for Coinbase had no immediate comment. Lawyers for the shareholders did not immediately respond to requests for comment.
Coinbase’s share price fell 12 per cent on June 6, 2023 after the SEC sued the company for allowing trading in tokens that the regulator said should have been registered as securities.
Shares also fell more than 26 per cent on May 11, 2022 after Coinbase added disclosures and reported a larger-than-expected revenue decline.
The proposed class action led by Swedish pension fund Sjunde AP-Fonden covers Coinbase shareholders from April 14, 2021 to June 5, 2023.
In February, the SEC ended its lawsuit against Coinbase, as the Trump administration eases regulatory oversight of the cryptocurrency industry.
The case is In re Coinbase Global Inc Securities Litigation, U.S. District Court, District of New Jersey, No. 22-04915.
