Coinbase Hit with 2 Class Action Lawsuits: Accused of Insider Bitcoin Cash Trading

Bitcoin exchange Coinbase was hit with two federal class action lawsuits in two days, including one accusing employees of insider trading of Bitcoin Cash (BCH).

In the first lawsuit, filed on March 1, the plaintiffs claim Coinbase employees illegally profited by trading on insider information that the exchange had planned to roll out Bitcoin Cash support in December 2017.

The action was filed in the U.S. District Court for the Northern District of California by lead plaintiff Jeffrey Berk on behalf of himself and a group of Coinbase customers.

Artificially Inflated Prices

The lawsuit alleges that insider trading activity by Coinbase employees artificially inflated the price of Bitcoin Cash, causing customers and the rest of the cryptocurrency market (who did not have the benefit of inside information) to unfairly lose money on their trades.

The plaintiffs alleged in their complaint:

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.

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.

Indeed, the price and trading volume of Bitcoin Cash spiked dramatically on Dec. 20, as shown by the chart below:

The lawsuit demands a jury trial and unspecified monetary damages for "all Coinbase customers who placed purchase, sale or trade orders with Coinbase during the period of Dec. 19, 2017 through and including Dec. 21, 2017... and who suffered monetary loss as a result of Defendants’ wrongdoing.”

Accused of Unfair Business Practices 

The second lawsuit was filed a day later, with Coinbase accused it "unlawful and unfair business practices" and violating California's Unclaimed Property Law.

Timothy G. Faasse and Jeffrey Hansen, filing on March 2 on behalf of a class of customers, accuse Coinbase of fraudulently keeping funds they knew did not belong to them simply because users had not claimed them. The complaint alleges:

Imagine writing a cashier’s check to a friend. The bank withdraws funds from your account, but your friend never cashes the check. Does the bank get to keep the funds? The law clearly says no. But this is exactly what has happened with Cryptocurrencies sent through, owned and operated by Coinbase, Inc. 

Coinbase users can send Bitcoin, Ethereum, Litecoin and Bitcoin Cash (collectively “Cryptocurrencies”) to an email address. Plaintiffs and the Class were sent an email from Coinbase stating they had Cryptocurrency, with a link to create a Coinbase account to redeem it. But until 2017, most people never heard of a “bitcoin” or cryptocurrency, so most of these emails were disregarded. And most of the Cryptocurrency went unclaimed.

But instead of notifying Plaintiffs and the Class they had unclaimed Cryptocurrencies, or turning those Cryptocurrencies over to the State of California as required by California’s Unclaimed Property Law...Coinbase kept them. 

IRS to Get Coinbase User Data

This has been a rough few weeks for Coinbase. In mid-February, the digital currency exchange and wallet platform was accused of overcharging its customers.

Amid outrage from users, payments processor Visa Inc. (V) later admitted that it had been responsible for the charging error. (See more: Visa: Coinbase Was Not Responsible For Overcharging Customers.)

One week later, Coinbase notified users that the IRS had ordered it to turn over data on 13,000 customers. Why? Because Uncle Sam wants to tax your bitcoin gains. (See more: IRS Wants to Tax Your Bitcoin Gains: Orders Coinbase to Hand Over User Data.)

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