Coinbase Accused With Class Action Lawsuit Over Alleged Insider Trading

Last week on March 1, a class action lawsuit has been filed against Coinbase accusing the U.S-based cryptocurrency exchange on alleged ‘insider trading’ during the launch and integration of Bitcoin Cash cryptocurrency to its platform.

As per the court document released on last Thursday, an individual named Jeffrey Berk has accused the exchange of tipping its employees and insiders ahead of the formal launch of Bitcoin Cash on December 19, 2017. In the 18-page lawsuit document, the group has also accused the exchange of security negligence and lapses. The group is currently seeking damages, the final amount of which will be decided during the trial.

Last year on December 19 2017, Coinbase without informing its customers priory made a surprise announcement of launching Bitcoin Cash on its platform. Just in minutes of the launch, the price of Bitcoin Cash shot up by over $1000, and following a heavy rush, the exchange collapsed in no time and had to cancel all the trading orders. 

In the lawsuit, Berk complains that all the customers who were unaware previously of the launch of BCH and the ones who placed buy, sell or trade orders on the launch date suffered heavy losses as the company is alleged to have tipped off its employees well before the release date.

The class-action lawsuit explains, “On December 19, 2017, a month after tipping off its own employees as to when it would commence fully supporting BCH, Coinbase suddenly announced that it was opening up its books to the buying and selling of BCH within minutes after its announcements.”

It further states that “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 online on the Coinbase exchange.”

The lawsuit mentions that all those customers who were not tipped off before the launch were completely trapped as the Coinbase employees started selling the BCH holdings soon after the price went up and before other customers could react to the situation, the Coinbase platform halted all its trading activities. The complaint also mentions that even though exchange tried to launch the coin next day, the trading activities remained ceased.

“They opened BCH for purchase, sale and trading the next day, and again within minutes, closed the books and canceled all the outstanding order while insiders and those who had prior knowledge of Coinbase’s confidential information were able to buy, sell and trade.”

All these accusations forced CEO Brian Armstrong to respond through a blog post where he has stated that the company will be investigating the matter of insider trading amongst its employees.

Moreover, CEO Brian Armstrong had also assured its customers about the probe saying that: “I take the confidentiality of material non-public information very seriously as CEO. Given the price increase in the hours leading up the announcement, we will be conducting an investigation into this matter. If we find evidence of any employee or contractor violating our policies — directly or indirectly — I will not hesitate to terminate the employee immediately and take appropriate legal action.”

It remains to be seen as to how the case proceeds further and what more details are yet to emerge.