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Coinbase Global, Inc.

Case Details

Class Period: April 14, 2021 - July 26, 2022
Date Filed: August 04, 2022
Case Number: 1:22cv04915
Jurisdiction: New Jersey District Court
icon-casetype Case Type: Securities Case
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Case Summary

The complaint alleges that throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operations, and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) Coinbase custodially held crypto assets on behalf of its customers, which assets Coinbase knew or recklessly disregarded could qualify as the property of a bankruptcy estate, making those assets potentially subject to bankruptcy proceedings in which Coinbase’s customers would be treated as the Company’s general unsecured creditors; (ii) Coinbase allowed Americans to trade digital assets that Coinbase knew or recklessly disregarded should have been registered as securities with the SEC; (iii) the foregoing conduct subjected the Company to a heightened risk of regulatory and governmental scrutiny and enforcement action; and (iv) as a result, the Company’s public statements were materially false and misleading at all relevant times. On May 10, 2022, in its quarterly report for the first quarter of 2022, released after the markets closed, Coinbase disclosed that: “[B]ecause custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors.” Following this disclosure, the price of Coinbase’s Class A common stock fell $19.27 per share, or 26.4%, to close at $53.72 per share on May 11, 2022. In a subsequent tweet commenting on the disclosure, Coinbase’s Chief Executive Officer, Defendant Brian Armstrong, stated: “We should have updated our retail terms sooner, and we didn’t communicate proactively when this risk disclosure was added. My deepest apologies, and a good learning moment for us as we make future changes.” On May 12, 2022, Professor Adam J. Levitin, a professor of law, at Georgetown University Law Center, published a draft of an article entitled “Not Your Keys, Not Your Coins: Unpriced Credit Risk in Cryptocurrency,” set to appear in the Texas Law Review, which argues that in the event a cryptocurrency exchange files for bankruptcy, bankruptcy courts are likely to deem custodial holdings of cryptocurrencies to be property of the bankrupt exchange, rather than the property of its customers. Then, on July 25, 2022, after the markets closed, Bloomberg reported that Coinbase is facing an SEC probe into whether it improperly let Americans trade digital assets that should have been registered as securities. On this news, the price of Coinbase’s Class A common stock fell $14.14 per share, or 21.08%, to close at $52.93 per share on July 26, 2022.

Documents
Complaint