A putative class action lawsuit filed against Coinbase (COIN) last week alleges that the Crypto exchange failed to properly secure customers’ accounts, leaving them vulnerable to theft and unauthorized transfers.
The complaint, filed in the United States District Court for the Northern District of Georgia, also accuses the company of causing users financial harm by locking them out of their accounts permanently or for an extended period, as well as violating federal law by listing securities on its trading platform.
Coinbase, which became the first Cryptocurrency exchange to go public in the United States last year, is facing a slew of lawsuits from disgruntled investors. A Coinbase shareholder charged the company of deceiving investors regarding last year’s public listing earlier this month, in addition to another aspiring class action lawsuit filed in New Jersey claiming the company permitted US citizens to trade unregistered securities.
In addition, the platform is attempting to resolve two separate lawsuits filed by investors through arbitration.
The lawsuit goes into detail about some of these alleged issues, citing a 2019 incident in which the exchange allegedly took more than six months to let a customer back into their own account, a pattern the suit claims repeated by the company.
The Georgia lawsuit represents a class of over 100 people, comprising lead plaintiff and Georgia resident George Kattula, though Kattula’s attorneys believe there may be additional victims.
In an emailed statement to CoinDesk, John Herman of Herman Jones LLC, the law firm based in Georgia representing Kattula, said: We are aware of a huge number of fraudulent transactions in the Coinbase customers’ accounts. We encourage all Coinbase account holders to carefully review their accounts and report any unusual activity to us immediately.
Customers must first contact Coinbase’s support team, and if the issue is not resolved, they must go through the “Formal Complaint Process,” according to the complaint.
Only after that has failed to resolve the customer’s dispute can the customer attempt to resolve the dispute through arbitration. However, Coinbase consistently fails to follow the pre-arbitration dispute resolution mechanisms outlined in the User Agreement, rendering the provision, including its delegation provision, null, according to the filing.
Furthermore, the suit claims that some of Coinbase’s assets meet the Securities and Exchange Commission’s (SEC) definition of a security, and the company itself may be an “exchange” under federal law, requiring it to register with the regulator.
The lawsuits began to pile up this year after the SEC announced in July that it was investigating Coinbase for the alleged sale of Crypto securities.
Coinbase’s user growth has beat its ability to offer the account services and consumer protections it promises, Kattula’s complaint stated.
According to the lawsuit, Coinbase’s failure to establish and maintain sufficient cybersecurity measures resulted in investors losing “wallet and account access, assets and investments in those accounts,” as well as confidential personally identifiable data stored in their Coinbase accounts, and, among other things, their investment opportunities.
Kattula’s suit seeks damages surpassing $5 million (excluding legal costs and fees), a binding judgment, and injunctive relief, which is an order prohibiting the parties involved from engaging in certain activities.
Coinbase had not responded to a request for comment by the time of publication.
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