A significant class action lawsuit has been filed against Coinbase (NASDAQ: COIN), one of the leading cryptocurrency exchanges, with serious allegations brought forth by investor plaintiffs. The lawsuit, filed in the United States District Court for the Northern District of California, accuses the firm and its CEO, Brian Armstrong, of deceptive practices and operating an illegal business model.

“Coinbase has been a part of a shadowy crypto ecosystem operating just outside of the law since formed over 10 years ago. Its entire business model has been built upon a lie and a dream: the lie is that ‘we do not sell securities,’ and the dream is that, knowing it would eventually be caught in the lie, ‘it is better to ask for forgiveness than permission’,” the lawsuit said.

The plaintiffs, represented by Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi, and Brett Maggard from California and Florida, claim that Coinbase has “knowingly, intentionally, and repeatedly violated state securities laws since it began doing business,” while misleading investors about the true nature of these assets.

Among the accusations are that Coinbase engaged in racketeering/RICO violations and wire fraud by artificially inflating cryptocurrency prices, deceiving investors, and promoting fraudulent tokens.

The lawsuit specifically points to several cryptocurrencies allegedly sold as securities by Coinbase, including Solana, Polygon, Near Protocol, Decentraland, Algorand, Uniswap, Tezos, and Stellar Lumens. The plaintiffs argue that Coinbase’s actions violated state securities laws since the company’s inception.

Coinbase’s user agreement, according to the lawsuit, admits to being a “Securities Broker” and acknowledges that the digital asset securities it sells are “investment contracts or other securities.” The plaintiffs further assert that Coinbase Prime, the exchange’s brokerage service, also falls under securities broker status.

The plaintiffs are seeking full rescission, statutory damages under state law, and injunctive relief through a jury trial. This lawsuit follows a similar class-action suit alleging consumer harm from Coinbase’s sale of securities.

Coinbase has previously contested allegations regarding the classification of tokens sold on its platform as securities. However, this new lawsuit underscores the ongoing legal challenges facing the exchange. It is distinct from Coinbase’s highly publicized legal battle with the U.S. Securities and Exchange Commission (SEC), which raises similar questions about token classification.

In response to a judge’s decision allowing the SEC case to proceed, Coinbase recently filed an interlocutory appeal. Additionally, in a separate development, John Deaton, a crypto lawyer running for office to unseat Senator Elizabeth Warren, filed an amicus brief supporting a motion for interlocutory appeal on behalf of thousands of Coinbase customers.

Despite the legal uncertainties, Coinbase reported a robust performance in the first quarter of 2024, driven by market upticks and the launch of spot Bitcoin exchange-traded funds (ETFs). During the first quarter, the exchange recorded a total revenue of $1.6 billion and a net income of $1.2 billion, resulting in $1 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Coinbase last traded at $223.25 on the NASDAQ.

Information for this story was found via Coin Telegraph and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.