Another lawsuit has been filed against cryptocurrency exchange Coinbase, this time for purported security flaws. The exchange is accused of failing to protect customers’ accounts against theft and hacking in the case, which was filed in a federal court in Georgia.
According to a complaint submitted to the U.S. District Court for the Northern District of Georgia, the cryptocurrency exchange listed securities on its trading platform in violation of federal law and allegedly caused users financial harm by locking them out of their accounts permanently or for extended periods. Customers’ accounts at Coinbase, it is said, were improperly secured, making them open to theft and hacking.
The plaintiff, George Kuttula, demanded a jury trial against the exchange, claiming that because Coinbase facilitates the transfer of securities, it ought to be registered as a broker in the nation. A total of $5 million or more in damages, a court order, and injunctive relief are demanded in the lawsuit.
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.
According to the complaint, if a consumer has a problem with the exchange, they must first contact the exchange’s support staff before going 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.