Coinbase's legal troubles deepened last week after a US judge allowed a class action lawsuit from shareholders to move forward. The lawsuit claims the crypto exchange misled investors about its exposure to regulatory risks, particularly from the US Securities and Exchange Commission (SEC).

Heightened Scrutiny

This ruling comes as Coinbase faces heightened scrutiny from regulators. A group of Coinbase shareholders claims the company made "materially false and misleading statements" regarding its chances of facing legal action from the SEC.

According to the court filings, the plaintiffs, who began purchasing shares in 2021, argue that Coinbase downplayed the risk of an SEC lawsuit, which eventually materialized in June 2023 when the regulator sued the exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term for allegedly violating federal securities laws.

US District Judge Brian Martinotti, presiding over the case in New Jersey, ruled that the shareholders have a plausible argument that Coinbase acted negligently. The court found that Coinbase may have misrepresented the likelihood of an SEC enforcement action despite repeatedly assuring investors that the crypto assets it listed were not considered securities.

The class action lawsuit is one of several legal challenges Coinbase is currently grappling with. In addition to the shareholder suit, the exchange is also locked in a legal battle with the SEC. In June 2023, the regulator filed a lawsuit against Coinbase, accusing it of violating US federal securities laws.

Coinbase's motion to dismiss the SEC's claims was largely unsuccessful. The judge ruled that the SEC presented plausible arguments that merit further exploration in court, Coindesk reported.

Regulatory Woes Escalate

Coinbase has faced growing regulatory scrutiny as governments and financial authorities worldwide tighten their oversight of the crypto industry. The outcome of these lawsuits could have significant implications not only for Coinbase but for the broader cryptocurrency market.

As the legal proceedings unfold, Coinbase faces significant uncertainty. The company's assurances to investors about its regulatory compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term and the potential risks of SEC enforcement are now under intense legal scrutiny.

In June, Coinbase filed lawsuits against the SEC and the Federal Deposit Insurance Corporation. According to a report by FoxBusiness, the lawsuits claim that both agencies failed to fulfill Freedom of Information Act requests submitted to the US District Court for the District of Columbia.