A number of Coinbase users have filed a fresh arbitration request against the well-known cryptocurrency exchange, claiming that the firm failed to sufficiently safeguard them from con artists.
These victims, who claim to have lost more than $21 million altogether, claim to have fallen victim to “liquidity mining pool scams,” which deceive people into investing cryptocurrencies in what they perceive to be legitimate group investment opportunities. Through the fraudulent use of so-called “smart contracts,” which self-execute code and automate transactions between crypto users, victims finally learn that they were tricked into allowing victims to drain their accounts permanently.
Victims are continually urged to make additional investments before their money is stolen, similar to past “pig butchering” frauds.
The case’s Boston-based attorney and former federal prosecutor, Eric Rosen, claimed that he thought it was the first of its sort.
The fact that it has [almost] 100 victims, all of whom have lost a sizeable sum of money and have been harmed by what transpired.
Individual losses allegedly vary from over $660,000 to about $35,000 worth of the cryptocurrency known as USDT, or Tether. In the event that an arbitrator—a form of private judge—determines in the victims’ favour, they would be entitled to reimbursement for their losses, interest, and legal costs.
In an email response, Coinbase representative Lisa Johnson stated that the business is “dedicated to protecting its consumers against scams.”
The “Coinbase Wallet,” which Johnson further described as “giving the users the flexibility and control to interact directly with the world of crypto without any intermediary by Coinbase,” was used by all of these victims.
This type of wallet, in contrast to Coinbase’s standard hosted wallets, allows users to store their own private cryptographic keys, which can be used to launch a variety of more contemporary cryptographic transactions. In conventional hosted wallets, Coinbase essentially functions as a bank to securely hold assets.
According to the arbitration demand, “The scams are successful because Coinbase created a flawed user interface that completely failed to warn its customers that the malicious smart contracts have the capability to access and withdraw (without the users’ consent) unlimited amounts of users’ cryptocurrency from their Wallets, both at the time the contract was entered into and in the future.
Customers of Coinbase relied on the company’s security guarantees without receiving any or enough warnings, so they unwittingly entered into the smart contracts that made it possible for these thefts to happen.
Each victim was approached by an online acquaintance they grew close to out of the blue. Over time, the con artist started talking about cryptocurrencies and decentralised financial systems. The victims were subsequently persuaded to buy a “voucher,” joining what they were informed was a cryptocurrency lending pool, whose conditions are set in a “smart contract,” a piece of computer code that automatically determines who gets paid when.
“The smart contract, in effect, functions as a Trojan Horse within a user’s Wallet, allowing the fraudster to control and transmit cryptocurrency out of that Wallet,” the arbitration demand continues.
According to the victims, Coinbase ought to have issued a warning that this is really what is happening. They also claim that they were unaware that they were granting “wholesale authority” for a third party to access their Coinbase Wallet funds indefinitely.
According to Rosen, Coinbase was putting up these accounts for customers and enabling them to deposit an unlimited amount of money into them without any customer service.
