Coinbase and CEO sued for illegal securities sales

Coinbase Global and its CEO, Brian Armstrong are facing a new class-action lawsuit filed in the Northern District of California.

The lawsuit alleges that Coinbase misled investors by selling unregistered securities while claiming not to be a securities broker. 

Six plaintiffs, including Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi, and Brett Maggard, accuse Coinbase of knowingly offering illegal securities like Solana (SOL), Polygon (MATIC), Near Protocol (NEAR), Decentraland (MANA), Algorand (ALGO), Uniswap (UNI), Tezos (XTZ), and Stellar Lumens (XLM).

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The lawsuit further claims that Coinbase’s entire business model hinges on the false notion that they are not dealing in securities. 

The plaintiffs argue that Coinbase contradicted its own claims in its User Agreement, where it identified itself as a “Securities Broker” and acknowledged that the digital assets it sells are “investment contracts” falling under California securities laws. 

Additionally, the agreement allegedly identifies Coinbase as a “securities intermediary” and the digital asset wallets as “securities accounts.”

The lawsuit was filed in the Northern District of California due to Coinbase’s substantial presence in the state.

Though the company closed its headquarters in 2022, its website confirms San Francisco as its original base. As of January 2020, 70% of Coinbase’s workforce, including CEO Brian Armstrong, resided in California. 

The court ruled that a significant portion of the alleged misconduct occurred within the district and thus, satisfies all conditions precedent for bringing the class action claims alleged to the District Court. However, Coinbase has not yet issued a public response to the lawsuit.