Coinbase, Robinhood, Kraken and Other Top US Crypto Exchanges at Risk of Class Action Lawsuit by Retail Investors

By Tsunami 03/10/23 12:05 AM

In a new report released on March 9 by Fox Business, it was revealed that major U.S. cryptocurrency exchanges may be facing a potential class action lawsuit from retail investors. The lawsuit would be led by long-time securities lawyer Tom Grady, who is well-known as one of the nation’s leading investment fraud attorneys.

Grady, through his Tampa-based law firm, is currently investigating Coinbase, Robinhood, Kraken, and other top crypto exchanges for potential violations of state and federal securities laws. The investigation centers around the exchanges’ transactions of digital coins, which are mostly regarded by the SEC as unregistered securities and are therefore in violation of federal law. Grady believes that these exchanges may have misled investors by not providing them with adequate disclosures about the risks of trading and owning unregistered crypto.

In a press release, Grady stated that “we believe Coinbase, Robinhood, and other exchanges have violated the law, and investors who lost money purchasing cryptocurrencies on their platforms may be entitled to recover those losses.”

When contacted for comment, Coinbase and Robinhood did not immediately respond, while Kraken declined to comment. However, in the past, these exchanges have argued that they operate legally and do not facilitate trades of coins that have been deemed unregistered securities by the SEC.

Grady’s law firm is also seeking out clients who suffered losses purchasing cryptocurrencies on these exchanges to share information about their investments.

The classification of digital assets has been a contentious issue in the crypto industry, with the SEC bringing enforcement actions against various crypto companies for offering unregistered securities since 2017. The SEC believes that the majority of digital coins are used for speculation or illegal activities, and are not connected to the underlying blockchain technology.

To determine if a crypto is an unregistered security, the SEC uses the “Howey Test,” named after a 1946 Supreme Court case that determines whether investment contracts must be registered with the SEC. Last month, the SEC sued crypto exchanges Gemini and Kraken for offering unregistered securities products to customers. Ripple, a digital cross-border payment company, is also currently being sued by the SEC for the sale of the token XRP to help build out its platform.

Grady’s potential class action lawsuit against the top U.S. crypto exchanges may increase scrutiny on the $1 trillion crypto industry, which has recently seen a significant decline in value and has been rocked by scandal. The industry’s recent downturn, dubbed the “crypto winter,” has seen the price of Bitcoin fall more than 50% from its all-time high. The recent announcement by Silvergate, a troubled crypto bank, that it is liquidating assets and closing operations is also adding further pressure to cryptocurrency prices.

While most retail investors believe that digital assets do not constitute securities, Grady’s potential lawsuit could open the door for more litigation against crypto firms. The ongoing debate over how to classify digital assets is likely to continue playing out in Washington.