Judge Rules Against Coinbase in Shareholder Lawsuit
Coinbase’s (COIN) legal troubles deepened on Thursday. A federal judge rejected the company’s bid to dismiss a proposed class action shareholder lawsuit. The lawsuit accuses Coinbase of misleading shareholders about the likelihood of a U.S. Securities and Exchange Commission (SEC) lawsuit. This ruling led to a significant drop in Coinbase’s stock value.
Coinbase Shareholder Lawsuit Details
U.S. District Judge Brian Martinotti issued the ruling in Newark, New Jersey. This decision came 15 months after the SEC’s civil lawsuit. The SEC, which was filed on June 6, 2023, accuses Coinbase of operating an unregistered securities exchange. Following the ruling, Coinbase’s stock plummeted 12%.
The judge found that shareholders had sufficiently alleged that Coinbase, along with top executives, had misrepresented the risk of SEC action. Specifically, Coinbase allegedly painted an overly optimistic picture regarding the regulatory environment. The company had repeatedly stated that the crypto assets listed were not securities. Additionally, Martinotti allowed shareholders to pursue claims that Coinbase misrepresented the risk of asset loss in the event of bankruptcy.
Stock Performance and Legal Fallout
Coinbase’s share price had already faced significant volatility. On May 11, 2022, the stock dropped 26% following a revenue report that exceeded expectations and new disclosures. The recent legal setback is exacerbating these declines.
Judge Martinotti’s 50-page decision also addressed other claims. The judge dismissed accusations that Coinbase engaged in proprietary trading. Brian Armstrong, Coinbase’s CEO, along with other executives, are still defendants in the case.
Coinbase Response to Shareholder Lawsuit Ruling
Coinbase responded to the ruling in a statement. The company expressed confidence in its position on both the facts and the law. “We remain confident that we are right on the facts and the law, and we look forward to proving the rest of our case,” said a Coinbase spokesperson.
Background on the Case
The proposed class action is led by Swedish pension fund Sjunde AP-Fonden. It covers Coinbase shareholders from April 14, 2021, to June 5, 2023. Earlier this year, a federal judge in Manhattan also rejected Coinbase’s attempt to dismiss the SEC lawsuit.
The case is officially titled In re Coinbase Global Inc Securities Litigation, U.S. District Court, District of New Jersey, No. 22-04915.
The judge’s decision represents a significant legal hurdle for Coinbase. The company’s stock is likely to remain volatile as the lawsuit progresses. Investors should monitor developments closely, as ongoing legal issues could continue to impact Coinbase’s stock performance.
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