Three Coinbase customers have brought a class action lawsuit against crypto exchange Coinbase for allegedly selling 79 unregistered securities to US customers. Louis Oberlander, Henry Rodriguez, and Christopher Underwood allege that a wide range of Coinbase's listings are illegal, including decentralized exchanges, lending protocols, oracles, metaverses, and meme coins.
The plaintiffs wish to “recover damages, consideration paid for tokens, and trading fees, together with interest thereon, as well as attorneys’ fees and costs, to the fullest extent permitted by law.” They believe Coinbase is liable for more than $5 million in damages.
The lawsuit mentions the US Securities and Exchange Commission (SEC) and its stance that crypto lacks proper investor protections, but it's unclear if the SEC actually cares about Coinbase's listings. We know the SEC pays close attention to Coinbase's product line, however. In September 2021, Coinbase announced that the SEC planned to sue Coinbase over its planned lending product, Coinbase Lend. Coinbase has not listed these 79 cryptos without the SEC's knowledge.
In December 2020, the SEC filed a lawsuit against Ripple in which they claimed the company's XRP token was an unregistered security. That lawsuit is still underway and its conclusion could bring clarity to the United States' definition of which cryptos are securities. Perhaps the SEC will pursue Coinbase's allegedly illegal listings after the Ripple lawsuit.
The lawsuit was announced around the same time Jim Chanos, founder of Kynikos Associates, said he's shorting Coinbase stock in an interview on CNBC.
Chanos didn't reveal the size of his position, but he did lay out his reasons to short Coinbase. Chanos called Coinbase a "bubble stock," adding, “we basically think Coinbase is over earning.” Coinbase is one of the only publicly traded crypto exchanges, but that will change over time. Chanos believes this will happen soon:
We think as competition increases amongst the exchanges, you're going to see fee compression and as it is Coinbase will probably not be profitable this year.
The cryptos listed in the lawsuit remain available for purchase to US-based Coinbase customers: 1INCH, AAVE, ACH, ADA, AGLD, ALGO, AMP, ANKR, ARPA, ATOM, AUCTION, AXS, BAL, BAND, BAT, BNT, BOND, BTRST, CGLD, CLV, COMP, CRO, CRV, CTSI, CVC, DNT, DOGE, DOT, ENJ, EOS, FARM, FET, FIL, FORTH, GNT, GRT, GTC, ICP, IOTX, KEEP, KNC, LINK, LOOM, LRC, MANA, MATIC, MKR, MLN, NKN, NMR, NU, OGN, OMG, ORN, OXT, PLA, POLY, QNT, QUICK, RARI, REN, REP, RLC, SHIB, SKL, SNX, SOL, STORJ, SUSHI, TRB, TRIBE, UMA, UNI, XLM, XRP, XTZ, XYO, YFI, ZRX