US crypto exchange Coinbase received a class action lawsuit last week. This is about claims that the company did not properly secure customers’ accounts, leaving those accounts vulnerable to unauthorized activity.
Financial damage for Coinbase users
The suit, filed last Monday in U.S. District Court in the state of Georgia, alleges that this has caused financial harm to users by excluding them from their accounts permanently or for an extended period of time.
A class action lawsuit is a type of lawsuit in which one of the parties is a group of people collectively represented by a member or members of that group. In other words, multiple parties join forces to file a lawsuit dealing with the same issue.
More than 100 people against Coinbase
This lawsuit represents more than 100 people, and in it Coinbase is accused of violating U.S. law by listing securities on its trading platform. Moreover, in an alleged incident in 2019 mentioned in the lawsuit, Coinbase took more than six months to restore access to a customer’s account. According to the lawsuit, this is symptomatic of Coinbase’s behavior.
Additionally, the lawsuit alleges that some of the cryptocurrencies listed on the exchange meet the description for the definition of a security from the U.S. Securities and Exchange Commission. As a result, Coinbase had not properly registered as a securities exchange with the SEC.
Criticism from crypto industry and legal experts
It’s a busy time in Coinbase’s legal department. That’s not necessarily Coinbase’s fault, but also how the SEC is handling their charges. For example, in an indictment against a former Coinbase employee, the SEC also labeled 9 crypto assets as security.
The decision to label these 9 tokens as security has received a lot of criticism. Not only from the crypto industry, but also from legal quarters.
Indeed, no normal process or public investigation preceded this, the SEC just suddenly came to this decision. Normally there should be 9 separate charges, and not against Coinbase, but against the crypto projects that go with those tokens. Ripple is currently in such a fight with the SEC.
In addition, Coinbase is also currently under investigation by the SEC for how the exchange adds new tokens to its offerings, the SEC is also looking at strike programs and revenue generating products. With the latter you can think of interest for loans.
Dated Legislation written in 1933
You could argue that Coinbase brought this on itself, but even a former SEC adviser is critical of the financial watchdog.
Professor J. Verret claims in an opinion piece for the Wall Street Journal that innovation forces a rethink of securities laws. If that legislation does not fit the new technology, then a solution must be found. According to Verret, this must be a solution that does not impede innovation. The basis for the current law was laid in 1933, and Verret believes that “certain facets” of crypto would blow over the lawmakers of 90 years ago.