Coinbase, one of the leading cryptocurrency exchanges, is facing legal challenges from a disgruntled shareholder. The lawsuit, filed in a New Jersey federal court, alleges that Coinbase misled investors about potential bankruptcy risks and engaged in risky trading practices.
The plaintiff, Wenduo Guo, claims that Coinbase failed to disclose that customer assets could be considered part of its bankruptcy estate, potentially leaving retail users as unsecured creditors. Despite positioning itself as a trusted custodian, Coinbase allegedly downplayed critical risks associated with digital asset custody, citing the collapse of over 75 crypto exchanges before its public listing in 2021.
The lawsuit also accuses Coinbase of engaging in proprietary trading, using company funds to trade assets without proper disclosure to investors. This risky practice was purportedly an attempt to counter falling crypto prices, exposing the firm to further financial instability.
Additionally, the complaint alleges that top Coinbase executives, including CEO Brian Armstrong, profited from insider knowledge by selling millions in stock while aware of the company’s vulnerabilities. Other executives and board members are also named in the lawsuit, which ties Coinbase’s troubles to the SEC’s 2023 lawsuit alleging unregistered securities listing and operating without proper regulatory approval.
Amidst these legal and regulatory challenges, Coinbase reported stronger-than-expected Q4 earnings in 2024, with revenue surging 138% from the previous year. However, the exchange is currently embroiled in multiple securities-related lawsuits, including a class action in New York and suits from customers in California and Florida over alleged securities violations.
Despite the legal battles, Coinbase remains confident in its position. A representative for the exchange stated, “We are at times the target of meritless litigation like this. We are confident in our position and look forward to defeating this lawsuit.”
As the legal saga unfolds, all eyes are on Coinbase to see how it navigates these challenges and whether it can maintain its position as a leading player in the cryptocurrency industry.