Coinbase Faces Class Action Lawsuit After Stock Plunge Linked to Data Breach Disclosure

Another day, another crypto giant in the crosshairs of angry investors. Coinbase’s stock took a nosedive after revelations of a data breach—now shareholders are lawyering up for a class action showdown.

When security fails, wallets (and portfolios) get lighter. The suit alleges Coinbase knew about the breach but delayed disclosure—leaving retail investors holding the bag while insiders might’ve dodged the bullet. Classic Wall Street playbook, now with blockchain flavor.

As regulators circle and lawyers sharpen their knives, one thing’s clear: in crypto, the only thing more volatile than prices is corporate accountability. Maybe next time they’ll prioritize security over stock buybacks?

Coinbase sued for failing to disclose insider misconduct and data breach

According to the court filing, the plaintiffs claim Coinbase delayed revealing a “major data breach involving insider misconduct.” 

The lawsuit also alleged that this delay in disclosure artificially inflated Coinbase’s stock value and harmed investors when the truth emerged, contributing to stock price losses. 

“On this news, the price of Coinbase’s common stock fell by $13.52 per share, or 5.52%, to close at $231.52 on July 25, 2024. Plaintiff Brady Nessler purchased Coinbase securities during the Class Period and was economically damaged thereby,” the lawsuit read.

CB Payments Ltd. and regulatory breaches in the UK

The suit also mentioned a possible regulatory violation involving Coinbase’s UK-based subsidiary, CB Payments Ltd. (CBPL), which is regulated by the United Kingdom’s Financial Conduct Authority (FCA). 

CBPL supposedly, per the lawsuit, facilitates customers fiat currency into e-money wallet deposits which can then be used to purchase and exchange crypto assets “via other entities within the Coinbase Group.”

According to the complaint, CBPL had entered into a 2020 agreement with the FCA, known as the VREQ, which helped minimize “material shortcomings in CBPL’s processes to prevent criminals or other malicious actors onto its platform.” 

Yet, the plaintiffs argue that CBPL allegedly breached this agreement, and that led to the onboarding of “13,416 high-risk customers,” exposing Coinbase to legal and compliance risk.

However, Nessler believes the statement was deceptive because it “omitted that CBPL had breached a 2020 agreement … with the United Kingdom’s Financial Conduct Authority,” for its anti-money laundering controls.

Coinbase stated in its filings: “Our long-term success depends, in part, on our ability to expand our sales to customers outside the United States … We currently have subsidiaries in the United Kingdom … and we plan to enter into or increase our presence in additional markets around the world.” 

Remote operational model and governance questions

The lawsuit also talked about Coinbase’s corporate structure, deemed as a “remote-first and does not maintain a headquarters or principal executive office.” 

The company insists that its executive meetings are held virtually or in rotating global office locations, and all shareholder meetings are also conducted online. Nessler’s class action court case may use this to argue that it contributed to governance failures and a lack of transparency in reporting risks to investors.

“The Company, had actual knowledge of the material omissions and/or the falsity of the material statements and intended to deceive Plaintiff and the other members of the Class, or acted with reckless disregard for the truth when they failed to ascertain and disclose the true facts in the statements made by them to members of the investing public,” the plaintiffs propounded, blaming CEO Armstrong and CFO Haas.

The plaintiff has requested a jury trial on all issues. As of now, Coinbase has not responded publicly to the lawsuit.

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