Coinbase Faces Class Action Lawsuit Over Lapses In Security
Crypto exchange Coinbase is facing yet another lawsuit, this time over alleged lapses in security. The lawsuit filed in a federal court in Georgia alleges that the exchange failed to secure users’ accounts against hacks and theft.
A complaint filed in the U.S. District Court for the Northern District of Georgia accuses the crypto exchange of causing financial harm to users by locking them out of their accounts permanently or for long periods of time, as well as violating federal law by listing securities on its trading platform. Coinbase allegedly failed to properly secure customers’ accounts, thereby leaving them vulnerable to hacks and thefts. Plaintiff George Kuttula requested a jury trial against the exchange, arguing that Coinbase should be registered as a broker in the country as it handles the transfer of securities. The suit is seeking damages exceeding $5 million, a binding judgement, and injunctive relief.
The lawsuit says:
Coinbase does not disclose that the crypto assets on its platform are securities. Indeed, Coinbase boldly flouts federal and state laws by proclaiming it does not need a registration statement for those securities and by refusing to register as a securities exchange or as a broker-dealer.
The filing adds:
Crypto assets resemble traditional securities because they represent an investment in a project that is to be undertaken with the funds raised through the sale of the crypto (whether it be a “token,” “stablecoin,” or cryptocurrency). Investors purchase crypto with the hope that the crypto’s value will appreciate as the issuer creates some use that gives the crypto value.
The complaint says that the exchange requires customers to first use its support team in the event of any issues, but if it is not resolved in that way, customers have to go through the “Formal Complain Process.” It adds:
If that fails to resolve the customer’s dispute, only then can customers attempt to resolve disputes through arbitration. But Coinbase systemically fails to follow those pre-arbitration dispute resolution mechanisms as set forth in the User Agreement, thereby rendering the provision, including its delegation provision, void.
The suit comes soon after the U.S. Securities and Exchange Commission said that it was investigating the exchange over the listing of securities.
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