Coinbase Class Action

Silver Miller is acting as Co-Lead Counsel to the putative class of plaintiffs in a class action lawsuit pending against California-based Money Services Business and cryptocurrency exchange operator Coinbase, Inc. The case is pending in the United States District Court for the Southern District of Florida under Case No. 9:16-cv-81992.

2016-12-13 -- DE 1 - CLASS ACTION COMPLAINT

According to the lawsuit, Paul Vernon — the former CEO and principal operator of a cryptocurrency exchange and Money Services Business known worldwide as Cryptsy — converted approximately $8.2 million in Cryptsy customer assets over a three-year period and liquidated to his own benefit those stolen funds through accounts Mr. Vernon and Cryptsy maintained at Coinbase. As alleged in the lawsuit, Mr. Vernon told Coinbase that the $8.2 million represented either a portion of the revenues Cryptsy had generated from its business or represented Bitcoin that Mr. Vernon himself personally owned. Despite Mr. Vernon’s assertions of business revenue and personal ownership, Coinbase — as a Money Services Business regulated under the FinCEN division of the U.S. Treasury Department — was required to reasonably verify those facts. The lawsuit asserts that Mr. Vernon’s claims were untrue, and Coinbase failed to satisfy its regulatory requirements or perform any reasonable investigation into the suspicious activity in Mr. Vernon’s and Cryptsy’s Coinbase accounts. Although the exact amount remains undetermined, the lawsuit estimates that the value of the digital funds laundered through Coinbase exceeds $8,200,000.00. Mr. Vernon is believed to have absconded with those funds when he abandoned Cryptsy and fled to China in late-2015.

As stated in the lawsuit, the class of victims pursuing relief includes: “All CRYPTSY account owners who: (1) deposited Bitcoins, alternative cryptocurrencies, or any other form of monies or currency at CRYPTSY, (2) had such currency liquidated by VERNON and CRYPTSY through COINBASE, and (3) have been denied access to their accounts and funds between May 22, 2014 and the present date.” The lawsuit asserts against Coinbase claims for aiding and abetting breach of fiduciary duty, aiding and abetting conversion, negligence, and unjust enrichment.

In June 2017, we defeated Coinbase’s efforts to have the lawsuit shifted to a private arbitration forum rather than the public forum that the U.S. courts provide. As Silver Miller Co-Founder David Silver was quoted saying at the time: “Coinbase does not want to be exposed in open court about what its business practices were in 2013-2015. Coinbase had a fiduciary duty to know its customers and report suspicious transactions. Simply stated, they chose not to do that. We look forward to litigating these claims.”

In addition to wrongdoing alleged to have occurred at Coinbase in 2013-2015, Silver Miller is also actively involved in investigating several ongoing problems and suspicious activities occurring at Coinbase in recent weeks/months, including the following:

Insider Trading: In August 2017, bitcoin "forked" and created a new cryptocurrency called Bitcoin Cash. When it was created, the value of Bitcoin Cash was relatively low; and Coinbase did not list Bitcoin Cash on its trading platform (GDAX). Despite publicly announcing that Coinbase would not list Bitcoin Cash on the GDAX until January 2018, the exchange added Bitcoin Cash to its trading exchange in mid-December 2017. The price of Bitcoin Cash skyrocketed immediately prior to being listed on the GDAX, which has many in the crypto community speculating that Coinbase insiders tipped off others in advance of the earlier-than-scheduled listing, which produced a huge financial windfall for those who purchased Bitcoin Cash before it was available on GDAX. Notwithstanding its claim that it would conduct a thorough internal investigation into whether any of its employees or staff members had violated insider trading rules, Coinbase has not made public the full results of its investigation into this suspect chain of events.

In August 2017, bitcoin "forked" and created a new cryptocurrency called Bitcoin Cash. When it was created, the value of Bitcoin Cash was relatively low; and Coinbase did not list Bitcoin Cash on its trading platform (GDAX). Despite publicly announcing that Coinbase would not list Bitcoin Cash on the GDAX until January 2018, the exchange added Bitcoin Cash to its trading exchange in mid-December 2017. The price of Bitcoin Cash skyrocketed immediately prior to being listed on the GDAX, which has many in the crypto community speculating that Coinbase insiders tipped off others in advance of the earlier-than-scheduled listing, which produced a huge financial windfall for those who purchased Bitcoin Cash before it was available on GDAX. Notwithstanding its claim that it would conduct a thorough internal investigation into whether any of its employees or staff members had violated insider trading rules, Coinbase has not made public the full results of its investigation into this suspect chain of events. Undelivered/Unclaimed Funds: Several Coinbase users have complained of sending cryptocurrency to non-Coinbase users via e-mail, having those deliveries either fail or wind up going unclaimed, but not being advised by Coinbase that the transmittals did not reach their intended destinations and not having the undelivered/unclaimed cryptocurrency returned to them. Instead, Coinbase has allegedly kept those unclaimed funds for itself, which many critics believe represents an unlawful or unfair business practice.

Several Coinbase users have complained of sending cryptocurrency to non-Coinbase users via e-mail, having those deliveries either fail or wind up going unclaimed, but not being advised by Coinbase that the transmittals did not reach their intended destinations and not having the undelivered/unclaimed cryptocurrency returned to them. Instead, Coinbase has allegedly kept those unclaimed funds for itself, which many critics believe represents an unlawful or unfair business practice. Platform Breakdowns: Delayed trades and failed purchase orders can cause accountholders not only undue worry but also significant investment loss. Because cryptocurrency prices fluctuate so frequently, timeliness of executing trading orders is key for a well-run exchange; and any lack of timeliness can prove devastating to an investor.

Delayed trades and failed purchase orders can cause accountholders not only undue worry but also significant investment loss. Because cryptocurrency prices fluctuate so frequently, timeliness of executing trading orders is key for a well-run exchange; and any lack of timeliness can prove devastating to an investor. Unexplained and Unwarranted Account Freezes/Inability to Access an Account: Many Coinbase customers have reported an inability to access their accounts despite complying with all Coinbase security protocols. As a result of such account lockouts, customers are unable to manage their holdings and protect themselves in the always-volatile world of cryptocurrency.

If you have lost money at Coinbase, have been prevented from adequately managing your account holdings, or are concerned about activity you deem to be suspicious or unexplainable, please contact us with information about your claim and your investment losses.