Coinbase will face a negligence lawsuit over the platform’s handling of the Bitcoin Cash token launch in December 2017, four months after the hard fork that gave birth to it. The farcical launch, which helped artificially inflate the price to over $4,000 at the time, led to allegations of insider trading after the exchange listed then delisted the token following huge volatility.
In a ruling Tuesday, U.S. District Judge Vince Chhabria accused Coinbase of acting with “incompetence born of haste” in rushing the addition of the asset, adding that it “breached its duty to maintain a functional market” by listing and then delisting the token at the expense of traders.
Berk v. Coinbase
The case, Berk v. Coinbase, 18-cv-01364, U.S. District Court for the Northern District of California (San Francisco), is a class action lawsuit brought by Arizona investor Jeffrey Berk in March 2018. Berk claims that Coinbase and GDAX traders of BCH “suffered monetary loss as a result of Defendants’ wrongdoing”, claiming that Coinbase tipped off their own employees as to the imminent launch, allowing them to buy up BCH in advance and thus driving up the price, before selling on Coinbase the moment it launched. These insiders were able to “sell their shares” before Coinbase halted trading due to the volatility, leaving “non-insiders” stuck and unable to trade. An internal Coinbase investigation in 2018 cleared the company of any wrongdoing, but this hasn’t stopped the case progressing.
JUST IN: Big crypto caselaw opinion from cal federal court in Berk case:
1. Coinbase (& other exchanges) have TORT duty to maintain functional marketplace.
2. Negligent launch of a digital currency foreseeably impacts those who trade in the resulting dysfunctional market. pic.twitter.com/Wm5Sca95OK
— Palley (@stephendpalley) August 7, 2019
Coinbase’s “Bungled” Launch Could Cost Them
In September 2018 Judge Chhabria acknowledged that Coinbase “bungled” the launch, but only yesterday was it confirmed that the company will face some of the charges brought by Berk. Judge Chhabria threw out more claims in the suit than he allowed to advance, but crucially ruled that buyers of BCH, not sellers, are allowed to move forward with the suit, stating that the claim puts forward a “plausible account that Coinbase breached its duty to maintain a functional market.
Among the claims Coinbase did manage to get thrown out were related to the more serious charges of fraud and unfair competition, meaning that the end verdict, if there is one and the matter isn’t settled out of court first, will relate to incompetence on behalf of the platform rather than malice, which would bring a lighter punishment.