Cryptocurrency exchange Coinbase Inc. has escaped the majority of the claims brought by a proposed class of investors accusing it of artificially inflating bitcoin cash prices in a botched launch, after a California federal judge gutted the suit, leaving just part of one negligence claim alive.
U.S. District Judge Vince Chhabria on Tuesday also rejected the company's attempt to move the claims into arbitration, calling the question a "close one," but ultimately deciding Coinbase must face the surviving allegation in court.
The proposed class, led by named plaintiff Jeffrey Berk, contends that Coinbase negligently bungled the December 2017 launch of bitcoin cash — an offshoot of bitcoin also known as BCH — on its trading platform, which allowed for insiders to sell BCH at inflated prices and swamp the market. Traders were given just an hour's notice, and trading was suspended after less than three minutes due to liquidity and other issues, Berk said.
Judge Chhabria tossed securities fraud claims and a claim under the California Unfair Competition Law on Tuesday, finding that allegations the exchange knowingly mishandled the launch were lacking.
"While the factual allegations paint a compelling picture of an incompetent launch by Coinbase, the complaint does not outline a coherent account of fraud," he said. "These shadowy inferences of scienter are implausible, especially when another explanation — incompetence born of haste — is far more applicable to these facts."
The UCL claim was dismissed for the same reasons as the fraud claims, he said.
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