This is a class action on behalf of all Coinbase customers who placed purchase, sale or trade orders with Coinbase or the GDAX in connection with Coinbase’s launch of BCH during the period of December 19, 2017 through and including December 21, 2017 (the “Class Period”) and who suffered monetary loss as a result of Defendants’ wrongdoing (the “Class”). Excluded from the Class are Defendants, any entity owned or controlled by them, and any officer, director, employee or agent of any of the Defendants, and any heirs, assigns, or family members of any individual defendant.
Coinbase is one of the most popular and accessible exchanges for the purchase, sale and use of Bitcoins, with more customers than Charles Schwab. By opening a Coinbase account, a person can obtain Bitcoins, and either buy and sell them or use them as currency with retailers and other businesses who accept Bitcoin as payments. Coinbase maintains a digital currency exchange known as the GDAX, which caters primarily to institutional and professional currency traders.
Coinbase customers can set up what is known as a wallet, in which they keep their Bitcoins for later use or for investment.
As one of the largest exchanges for the purchase and sale of Bitcoin, (and effectively a monopoly), the issue of whether Coinbase will maintain a market and support a cryptocurrency is essential to people who want to buy or sell the currencies. On about August 6, 2017, Coinbase abruptly changed course, and announced that it would allow current Coinbase customers at the time of the hard fork to withdraw their BCH but not until January 2018, but that it still would not support the currency.
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.
The remaining Coinbase customers, however, were not so lucky. Within minutes, but after its insiders were able to sell their shares, Coinbase stopped the trading in BCH, and cancelled the outstanding orders of other customers, claiming that there was no more liquidity in the issue. They opened BCH for purchase, sale and trading the next day, and again within minutes, closed the books and cancelled all the outstanding order while insiders and those who had prior knowledge of Coinbase’s confidential information, were able to buy, sell and trade.
When Coinbase’s customers’ trades were finally executed, it was only after the insiders had driven up the price of BCH, and thus the remaining Bitcoin customers only received their BCH at artificially inflated prices that had been manipulated well beyond the fair market value of BCH at that time.
Rumors of insider trading, given the one month tip off that Coinbase gave to its employees, immediately started circulating. Although the Company, through its chief executive officer, Armstrong publicly announced that the Company had an insider trading policy, and that it was undertaking an internal investigation of the insider trading allegation, to date, neither Armstrong nor the Company has disclosed the result of its purported investigation.
Plaintiff brings this action on behalf of all Coinbase customers who were harmed by the Company’s changing statements in connection with its launch of BCH, and who were damaged by Defendants’ negligence in the handling of the launch.
This action is brought under diversity jurisdiction under the Class Action Fairness Act, 28 U.S.C. §1332(d), in that the named Plaintiff is a citizen of a state different from the Defendants, and the aggregate amount in controversy for all Class members exceeds $5,000,000, exclusive of interest and costs.
Venue is proper in this Judicial District pursuant to 28 U.S.C. § 1391(b) and Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)). Substantial acts in furtherance of the alleged conduct have occurred in this Judicial District. Many of the acts charged herein, including the dissemination of materially false and/or misleading information and the manipulation of the Company’s stock, occurred in substantial part in this Judicial District, as did the acts of negligence.
Plaintiff is a citizen of Arizona. On December 19, 2017, at 5 p.m. PST, Plaintiff attempted to purchase BCH within five minutes of Coinbase announcing that it was going to support BCH. Plaintiff’s orders were not executed until 1:06 p.m. December 20, at which time, Plaintiff learned that his order was executed and that he had purchased BCH at the inflated price of $4,200.98 per BCH. Plaintiff’s order was executed at prices 100% greater than the price at the time that he submitted his buy order.
Coinbase maintains its principal place of business in San Francisco, California and is incorporated in Delaware. It is one of the most powerful digital currency exchanges in the world, buying and selling Bitcoin, BCH, Litecoin, and Ethereum.
It does so through a secure platform, in which customers can buy, sell, transfer or store their digital current in electronic wallets. Although Coinbase maintains a digital currency exchange known as the GDAX, for the most part, it services professional traders and institutions, leaving Coinbase to act and the main broker and underwriter for retail customers wishing to purchase digital currencies.