A Coinbase shareholder has taken the exchange to court, alleging it misled investors about bankruptcy risks and engaged in risky trading practices.
According to the Feb. 18 lawsuit filed in a New Jersey federal court, plaintiff Wenduo Guo claims Coinbase failed to disclose that customer assets could be considered part of its bankruptcy estate, potentially leaving retail users as unsecured creditors.
The plaintiff argues that while Coinbase positioned itself as a trusted custodian, it downplayed critical risks associated with digital asset custody. The suit pointed to the collapse of more than 75 crypto exchanges before Coinbase went public in 2021, which left customers without their funds.
Despite repeated assurances from company leadership, the suit contends that Coinbase offered no greater protection against such risks.
Beyond bankruptcy concerns, the lawsuit accuses Coinbase of engaging in proprietary trading—using company funds to trade assets—without properly disclosing this to investors. Guo claims this was a desperate attempt to counter falling crypto prices, exposing the firm to further financial instability.
Further, the complaint alleges that top Coinbase executives, including Coinbase CEO Brian Armstrong, profited from insider knowledge, selling millions in stock while aware of the company’s vulnerabilities.
Other executives named in the complaint include co-founder Fred Ehrsam, CFO Alesia Haas, COO Emilie Choi, Chief Legal Officer Paul Grewal, and Chief Accounting Officer Jennifer Jones. Several board members, including Fred Wilson, Mark Andreessen, Kelly Kramer, Gokul Rajaram, and Tobias Lütke, are also listed, along with former board member Kathryn Haun.
The lawsuit also ties Coinbase’s troubles to the SEC’s 2023 lawsuit against the company, which alleged it listed unregistered securities and operated without proper regulatory approval.
Guo argues that these mounting legal and regulatory pressures, combined with undisclosed internal risks, have led to substantial losses for the company’s shareholders. The lawsuit seeks damages and governance reforms to prevent future misconduct and has demanded a trial by jury.
As of press time, Coinbase has not issued an official statement. crypto.news reached out for comment but has not heard back.
Coinbase’s legal woes
Aside from the latest lawsuit, Coinbase is currently battling a class action in New York over alleged securities violations. Earlier this month, a U.S. judge ruled that Coinbase must face a lawsuit from customers accusing the exchange of illegally selling securities. The case, originally dismissed in 2023, was partially revived last year by an appeals court, allowing key accusations to move forward.
The New York case isn’t the only securities-related lawsuit Coinbase is facing. In May 2024, customers from California and Florida sued the exchange and CEO Brian Armstrong over similar allegations, identifying tokens like Solana, Polygon, Near Protocol, Decentraland, and Algorand as unregistered securities.
However, Coinbase’s battle with the SEC, which has been dragging on for nearly two years, could see a turning point soon. In a Feb. 14 filing, the SEC requested an additional 28 days to review Coinbase’s appeal, noting that the newly established crypto task force could play a role in bringing the legal dispute to an end.
Despite legal troubles, the exchange reported stronger-than-expected Q4 earnings in 2024, with its revenue surging 138% from 2023.
