Coinbase Hit with Lawsuit for Alleged Employee ‘Insider Trading’

Coinbase has been hit with a class-action lawsuit that alleges employees and other insiders engaged in insider trading in connection with the company’s decision to add support for bitcoin cash.

The lawsuit, filed on March 2 in the US District Court for the Northern District of California, alleges that employees and other insiders acted on non-public information to manipulate the bitcoin cash price following its listing on the company’s eponymous brokerage platform, as well as GDAX, its order-book exchange.

As BlockExplorer reported, Coinbase added support for BCH in mid-December. Immediately following its launch, the bitcoin cash price quickly and inexplicably shot up to $9,500 on GDAX, despite the fact that the coin’s global average peaked at $3,813. Within minutes, the company had halted trading, but those who bought BCH during the frenzy accused the exchange of quoting artificially-inflated prices.

Many observers accused those with prior knowledge of the addition of engaging in insider trading, and Coinbase CEO Brian Armstrong assured customers in a blog post that the company was conducting an internal investigation. He vowed that the company would terminate and take appropriate legal action against any employee found to have traded on the news.

From the post:

“Given the price increase in the hours leading up the announcement, we will be conducting an investigation into this matter. If we find evidence of any employee or contractor violating our policies — directly or indirectly — I will not hesitate to terminate the employee immediately and take appropriate legal action.”

However, the suit notes that neither Armstrong nor Coinbase has publicly disclosed the results of that inquiry.

Notably, the lawsuit requests that the court award damages under California’s Unfair Competition Law — not statutes involving insider trading. This, as Rick Falvinge noted in his reaction to the brouhaha, is because bitcoin cash and other cryptocurrencies are currently regulated as commodities — not securities. Consequently, insider trading laws technically cannot be applied to the incident.

When contacted for comment, a Coinbase representative referred us to the company’s blog.

Featured image from Pexels

David Murray

David has been following the development of cryptocurrency technology for several years, and he is optimistic about its potential to democratize the financial system.

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