Investors sue Coinbase over bankruptcy and risk disclosures
A U.S. federal judge has given the green light for Coinbase shareholders to proceed with a more focused version of their class-action lawsuit against the popular crypto exchange. The lawsuit alleges that Coinbase misled investors about regulatory and financial risks, sparking a legal battle that has captured the attention of the cryptocurrency community.
The ruling, issued by U.S. District Judge Brian Martinotti in Newark, New Jersey, represents a significant milestone for investors who claim they were deceived about the potential for U.S. regulators to target Coinbase and the security of customer funds in the event of bankruptcy. Despite Coinbase’s efforts to have the case dismissed entirely, Judge Martinotti’s decision allows the legal proceedings to move forward.
In a detailed 59-page ruling, Judge Martinotti declined to address every disputed claim, humorously quipping that “judges are not like pigs, hunting for truffles buried in briefs,” in reference to the parties’ disagreements over which allegations remained relevant. The class action lawsuit, spearheaded by Sweden’s Sjunde AP-Fonden pension fund, represents Coinbase shareholders who purchased stock between April 14, 2021, and June 5, 2023, a period marked by significant volatility in both crypto markets and regulatory scrutiny.
According to court filings cited by Reuters, the shareholders allege that Coinbase and certain executives, including CEO Brian Armstrong and CFO Alesia Haas, made misleading statements and omissions regarding key risks. Specifically, investors claim that Coinbase downplayed the likelihood of the U.S. Securities and Exchange Commission (SEC) taking enforcement action, failed to warn customers about the potential loss of access to their assets in the event of bankruptcy, and understated how regulatory and operational risks could impact the company’s financial performance.
These alleged misrepresentations were said to have appeared in regulatory filings, earnings calls, blog posts, and social media communications between 2021 and 2023. The shareholder lawsuit unfolds against the backdrop of Coinbase’s legal tussle with the SEC, which sued the company in 2023 for allegedly listing and selling securities illegally. Coinbase vehemently denied the allegations, arguing that its exchange listings did not constitute securities transactions.
The case was eventually dropped in February 2025, following signals from the Trump administration indicating a more industry-friendly approach to digital asset regulation. In response to the recent ruling, Coinbase issued a statement characterizing the decision as a “significant step forward” and reaffirmed its commitment to defending itself against the remaining claims. Legal representatives for the shareholders have yet to comment on the ruling.
The Swedish pension fund Sjunde AP-Fonden, acting as the lead plaintiff in the case, highlights several sharp declines in Coinbase’s stock price during the specified period. Notably, the company’s shares plummeted by 12% in June 2023 after the SEC filed its lawsuit, and dropped over 26% in May 2022 following weak earnings and a new risk disclosure warning about customer assets potentially being treated as company property in a bankruptcy scenario.
As of the latest update, Coinbase is trading at $385.78, reflecting a 1.49% increase over the last day. TheStreet Roundtable reached out to Coinbase for comment but did not receive a response at the time of publication. This story was originally reported by TheStreet on October 6, 2025, in the Business News section.
