On September 5, 2024, U.S. District Judge Brian R. Martinotti denied Coinbase’s motion to dismiss a shareholder class action against the world’s largest crypto exchange.
In a 49-page opinion, the court sustained securities fraud claims brought by Swedish pension fund Sjunde-AP Fonden (AP7) on behalf of investors stemming from Coinbase’s failure to disclose the true business risks facing the nascent crypto platform. These risks included the likelihood that the SEC would pursue an enforcement action against the company for failing to register the digital assets it lists as securities with the Commission. "The court finds plaintiffs have adequately alleged that defendants misleadingly described a favorable picture of the improbability that the SEC would file an enforcement action by repeatedly emphasizing that the crypto assets they listed were not securities," said the judge's order. In June 2023, when the SEC filed its enforcement action against Coinbase, the company’s stock tumbled, causing massive investor losses. The court also sustained AP7’s claim that Coinbase concealed the risk that customers’ crypto assets could be treated as part of the company’s estate in the event Coinbase filed for bankruptcy.
The case, pending in the U.S. District Court for the District of New Jersey, will now proceed to discovery.
The KTMC team representing investors includes Matthew Mustokoff, Stacey Kaplan, Margaret Mazzeo, Joshua Materese, Austin Manning, and Dylan Isenberg. The team members were recognized as “Legal Lions of the Week” by Law360 for this important win.