TLDRs;
- Coinbase stock climbed over 7% even as a U.S. judge allowed a narrowed shareholder lawsuit to move forward.
- The lawsuit alleges Coinbase misled investors about SEC action risks and potential loss of customer assets in bankruptcy.
- Judge Martinotti dismissed broad “group pleading” claims but allowed targeted allegations against specific executives to continue.
- Despite lawsuits and regulatory pressure, COIN remains up 38% year-to-date, signaling strong investor confidence.
A federal judge in New Jersey has ruled that Coinbase Global Inc. (NASDAQ: COIN) must face a trimmed version of a shareholder lawsuit alleging the company misled investors about key risks tied to regulatory scrutiny and bankruptcy exposure.
U.S. District Judge Brian Martinotti rejected the exchange’s attempt to have the case thrown out entirely. Instead, he ruled that while some general claims lacked merit, specific allegations against individual executives and directors may proceed.
The lawsuit, brought by Swedish pension fund Sjunde AP-Fonden, targets the period between April 2021, when Coinbase went public, and June 2023. Investors claim the company downplayed the likelihood of Securities and Exchange Commission (SEC) enforcement and failed to disclose that customer funds could be jeopardized in bankruptcy.
Stock Climbs Despite Court Ruling
Remarkably, Coinbase stock rose on Thursday even as the lawsuit moved forward. Shares closed at $372.07, up 7.48%, before inching slightly higher in after-hours trading to $373.46.
The resilience reflects broader investor confidence in Coinbase’s long-term prospects, despite its turbulent relationship with U.S. regulators. Year-to-date, COIN shares remain up more than 38%, outpacing the Nasdaq Composite and showing continued optimism around crypto adoption.
This is not the first time Coinbase stock has absorbed legal headwinds. In June 2023, the SEC filed a lawsuit accusing the company of operating as an unregistered securities exchange. That filing triggered a sharp 12% drop at the time. But since then, the market appears to have priced in much of the regulatory uncertainty, with Thursday’s rally underscoring renewed strength.
Narrow Claims Move Forward
Judge Martinotti clarified that shareholders cannot rely on “group pleading,” which attributes all corporate statements to all executives by default. Instead, claims must tie specific misrepresentations to particular individuals.
The decision means that dozens of statements made in blog posts, earnings calls, and press releases between 2021 and 2023 are under review, though not all will survive legal scrutiny.
While some allegations were dismissed, the lawsuit remains a potential risk for Coinbase as it navigates not only federal oversight but also enforcement actions from multiple U.S. states. Oregon, New York, and California have all filed separate challenges against aspects of Coinbase’s operations, ranging from staking services to how Ethereum should be classified under securities laws.
Legal Challenges Pile Up
The narrowed shareholder suit adds to Coinbase’s mounting legal woes. Earlier this year, the company faced at least six lawsuits linked to a data breach that exposed nearly 80,000 users. Plaintiffs accused the exchange of poor cybersecurity practices and mishandling the fallout, leaving customers vulnerable to fraud.
Meanwhile, Coinbase Chief Legal Officer Paul Grewal has urged the U.S. Department of Justice to intervene against what he calls a “patchwork” of state-level lawsuits that conflict with federal law. He has pushed for congressional passage of clearer crypto regulations, including the CLARITY Act in the House and the Senate’s Responsible Financial Innovation Act, both of which could reshape market rules.
Despite these headwinds, the company continues to defend its position as America’s largest crypto exchange. Investors, for now, appear to be betting that regulatory uncertainty will eventually give way to clearer rules that could benefit Coinbase in the long run.
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