Cryptocurrency exchange Coinbase and its CEO Brian Armstrong are embroiled in yet another legal battle, as a class-action lawsuit alleges investor deception and illegal business practices. The lawsuit, filed in the United States District Court for the Northern District of California San Francisco Division, accuses Coinbase of knowingly selling securities, violating state laws, and misleading investors.

Claims Against Coinbase

The lawsuit, brought forth by plaintiffs Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi, and Brett Maggard from California and Florida, alleges that Coinbase has been selling securities since its inception. Specifically, it points to tokens like Solana, Polygon, Near, Decentraland, Algorand, Uniswap, Tezos, and Stellar Lumens as being classified as securities.

The crux of the lawsuit revolves around Coinbase’s admission in its user agreement that it operates as a “Securities Broker.” Plaintiffs argue that this acknowledgment implicates Coinbase in the sale of investment contracts or other securities. Moreover, the lawsuit contends that Coinbase Prime, the exchange’s brokerage service, also falls under securities regulations.

Legal Action and Remedies Sought

The plaintiffs are seeking full rescission, statutory damages under state law, and injunctive relief through a jury trial. This lawsuit echoes previous legal challenges against Coinbase regarding the sale of securities. Coinbase has consistently disputed the classification of tokens sold on its platform as securities. It has argued that secondary crypto asset sales do not meet securities transaction criteria and has challenged the relevance of securities regulations in this context.

Distinguishing Lawsuits

This new lawsuit stands apart from Coinbase’s ongoing legal battle with the U.S. Securities and Exchange Commission (SEC), which also questions the classification of tokens as securities. Coinbase recently filed an interlocutory appeal in response to a judge’s decision allowing the SEC case to proceed.

In a separate development, John Deaton, a crypto lawyer and political candidate, filed an amicus brief in support of a motion for interlocutory appeal on behalf of thousands of Coinbase customers. This indicates both support and opposition within the legal community regarding Coinbase’s legal challenges.

Financial Performance Amid Legal Struggles

Despite these legal hurdles, Coinbase reported a robust rebound in the first quarter of 2024. The exchange attributed this success to improved market performance and the launch of spot Bitcoin exchange-traded funds (ETFs). Coinbase posted impressive figures, including $1.6 billion in total revenue and $1.2 billion in net income for the first quarter, with $1 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

The lawsuit against Coinbase underscores the ongoing legal uncertainties surrounding cryptocurrency regulation. As the crypto industry continues to evolve, legal battles like these will shape the regulatory landscape and influence market dynamics.