Coinbase Faces Trimmed but Ongoing Lawsuit Over SEC and Bankruptcy Risks

• The judge narrowed but did not dismiss the shareholder lawsuit, rejecting claims based only on group pleading.
• Shareholders allege Coinbase concealed SEC enforcement risks and the possibility of customer losses in bankruptcy.
• The case adds to Coinbase’s mounting legal challenges, including state actions and lawsuits over its 2025 data breach.

Judge Allows Narrowed Coinbase Lawsuit

According to a decision of a U.S. federal judge, Coinbase is liable to go through a truncated shareholder lawsuit alleging that the exchange is hiding regulatory and bankruptcy risk. In Newark, New Jersey, U.S. District Judge Brian Martinotti denied demands of a complete dismissal of Coinbase and its executives. Some of the allegations will be thrown out, but the ones backed by certain details against individual defendants will proceed.

The lawsuit is a class action lawsuit against the investors who purchased Coinbase stocks between June 5, 2023, and April 14, 2021. Shareholders claim that Coinbase deceived them into believing that the SEC might take action and did not warn customers that they could lose their assets in case of a bankruptcy filing.

Martinotti decided that the shareholders could not count on group pleading, in which the general statements of the company were circulated among the executives, without drawing the line. He made it clear that it would only go forward with defendant specific claims of particularity. The decision he issued was 59 pages long and he had not indicated which statements had been dismissed, since the parties had not pointed them out.

At the time of publication, Coinbase stock rose 2.8 per cent to $344.23 on NASDAQ. The SEC lawsuit on June 6, 2023, has led to a price decrease of almost 12%, which is still a significant turning point in the history. In spite of these, the stock has recorded a gain of 38.4 percent in a year to date.

Coinbase Faces Expanding Legal Challenges

The lawsuit is additional to the legal strains that Coinbase is facing. Shareholders allege that the company has made false claims in the two-year period being examined in regulatory filings, earnings calls, posts on blogs and social media. Although the SEC closed its investigation against Coinbase early this year after the regulator reconsidered its rules under the Trump administration, the shareholder petition still stands.

In addition to the federal litigation, Coinbase is also fighting enforcement measures at the state level. New York, Oregon, California, Maryland, Wisconsin, and most recently Maine have been addressing its staking services and self-custody wallets. Responding to this, Coinbase has asked the U.S. Department of Justice to stop what it dubs as a patchwork of inconsistent state regulations. Chief Legal Officer Paul Grewal has pressed Congress to enact legislation like CLARITY Act and the Responsible Financial Innovation Act so that there is a consistent regulation.

There are also at least six lawsuits that Coinbase is fending off, as a result of a data breach in May 2025 that disclosed almost 80,000 users. In New York and various other states, complaints have been filed against the company claiming that it has weak cybersecurity practices and that it responds slowly and breaches privacy controls, with the result being users falling prey to identity theft and fraud.