A San Francisco judge refused to let Coinbase off the hook from a lawsuit claiming the cryptocurrency exchange’s negligence during the launch of Bitcoin Cash on its platform back in 2017.
Coinbase will face the buyers’ negligence claims, and the US District Judge Vince Chhabria also denied the exchange’s motion to move the case to arbitration. However, the court cleared Coinbase from the plaintiffs’ fraud and unfair competition charges relating to the case. It found that the plaintiff Jeffrey Berk failed to describe the scope or content of Coinbase’s duty in anything more than broad generalities.
The United States District Court North District of California published a court document this past Tuesday detailing the dismissal. Vince Chhabria, US District Judge, found that the plaintiff from Arizona had not sufficiently provided the legal bases for his claims in the complaint.
“To the extent the negligence, fraud, and Unfair Competition Law (UCL) claims are based on insider trading and market manipulation, Coinbase’s actions would constitute an independent wrong from any breach of the user agreement,” the judge said.
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Of note, the court also denied a separate motion to dismiss the negligence claims by the plaintiffs who attempted to sell Bitcoin Cash.
Insider trading allegations
The court says Coinbase had a duty to maintain a functional marketplace after regular customers rushed to place their orders following its launch of trading in Bitcoin Cash. The orders belonging to these customers were only settled after the halt was lifted and the BCH price had already spiked, which caused substantial losses to the plaintiffs. The court added that Coinbase’s negligent launch impacted traders in “the dysfunctional market,” who suffered “an ascertainable pocketbook injury.”
The complaint was filed by Coinbase user Jeffrey Berk, representing all customers that placed buy, sell or trade orders for BCH at the time of launch. He alleged that Coinbase employees and others with knowledge of the matter benefited from trading on the basis of non-public information.
According to the filing, Coinbase listed the newly forked BCH without notice, and shortly after trading opened, the price of BCH skyrocketed by over 130 percent. When rumors emerged that Coinbase employees were tipped off about the launch, suspicions of insider trading immediately began to spread.