An amended class action lawsuit alleging insider trading at cryptocurrency wallet and exchange service Coinbase will go to court, after an initial application to the courts was turned down on a legal technicality.
The decision, published in court documents uploaded by Coinbase, means the case will be heard on January 31, 2019, in a district court in north California, giving the plaintiffs the chance to put their arguments in front of a judge for the first time.
The case concerns allegations of insider trading at Coinbase over its handling of the bitcoin BCH rollout in 2017, which many users had felt resulted in Coinbase staff profiting at the expense of the market.
The initial application was rejected in October, after petitioner Jeffrey Berk had failed to “describe the scope or content of Coinbase’s duty.” However, the amended filing now highlights how Coinbase breached its own listing rules, which claimants suggest will now form the basis of their class action.
According to the filing, Coinbase did in fact sell BCH at artificially inflated prices to its own benefit during the launch last year. It stated, “The sudden launch (of BCH) was effectively part of an attack by Coinbase and (CEO Brian Armstrong) to depress the price of BTC and to inflate the price of BCH, to encourage more transactions and greater profitability for Coinbase.”
“As a consequence of this scheme, the Individual Defendants and Coinbase enabled Coinbase to earn significant fees from the trades of its customers, from which Coinbase earned a spread over an inflated price for BCH, and to avoid a ‘run’ on the Company by sellers anxious to take advantage of the inflated price, by closing down trading within minutes of the Launch to all except certain insiders who were positioned to and did sell BCH at inflated prices during the Launch,” according to the filing.
Coinbase has until December 20 to file a response to the claim, ahead of its court hearing at the end of January.
The judge who ruled on the first filing, District Judge Vince Chhabria, accepted that Coinbase had “bungled” the rollout of BCH.
The firm has since conducted its own internal investigation, which perhaps unsurprisingly found no foul play.
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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Cryptocurrency exchange Coinbase has escaped a class-action lawsuit accusing the San Francisco-based company of artificially inflating the price of Bitcoin Cash (BCH) in December 2017. For now, that is.
In March, a group of investors led by Jeffrey Berk filed a lawsuit against Coinbase, alleging that the crypto exchange tipped its employees a month before launching the Bitcoin BCH trading on its platform. The lawsuit claimed, “Unsurprisingly, those who had been tipped off, immediately swamped Coinbase and the GDAX with buy and sell orders, thinning the liquidity but obtaining BCH at fair prices. The market effect was to unfairly drive up the price of BCH for non-insider traders once BCH came on line on the Coinbase exchange.”
U.S. District Judge for the Northern District of California Vince Chhabria, however, saw it differently.
On Tuesday, Chhabria dismissed all claims without prejudice—with one exception—in Berk’s lawsuit on grounds that the “complaint does not sufficiently articulate the legal basis for his claims,” Coinbase reported. The judge noted that due to Berk’s failure to specifically describe the scope of Coinbase’s duty, “a reader of the complaint is thus left wondering what Coinbase should have done differently, or why the rollout of Bitcoin Cash would have gone more smoothly had Coinbase done whatever Berk thinks is appropriate.”
That one exception was Berk’s claim under the Commodity Exchange Act (CEA). According to the ruling, “Berk has a private right of action under the CEA only if he used Coinbase to make a ‘contract of sale of [a] commodity for future delivery’—in other words, a ‘futures contract.’”
In this particular claim, Berk cited the U.S. Commodity Futures Trading Commission (CFTC) vs McDonnell case, but Chhabria pointed out that the Coinbase lawsuit “is not an enforcement action brought by the CFTC,” noting that “Because Berk used Coinbase to purchase Bitcoin Cash, rather than to make a contract to purchase Bitcoin Cash at a specific date in the future, he cannot maintain a claim under the CEA.”
Berk and his lawyers now have 21 days to file an amended complaint.
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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