BCH Insider Trading Lawsuit Against Coinbase Temporarily Dropped by Judge, Citing No “Legal Basis”


Lawsuit Against Coinbase Temporarily Dismissed by Judge, Citing No “Legal Basis”

Coinbase was recently the subject of a lawsuit, which was filed in March. In the lawsuit, Arizona resident Jeffrey Berk said that “unsurprisingly, those who had been tipped off about bitcoin cash's listing, immediately swamped Coinbase and the GDAX sic with buy and sell orders, thinning the liquidity but obtaining BCH at fair prices. The market effect was to unfairly drive up the price of BCH for non-insider traders once BCH came on line at the Coinbase exchange.”

On Tuesday this week, U.S. District Judge Vince Chhabria from California decided to dismiss the case. Explaining the decision, Judge Chhabria wrote,

“Berk's complaint does not sufficiently articulate the legal basis for his claims,” and explaining that “a reader of the complaint is thus left wondering what Coinbase should have done differently, or why the roll out of bitcoin cash would have gone more smoothly had Coinbase done whatever Berk thinks is appropriate.”

The only exception made for the case is concerning something that Berk had alleged about the Commodity Exchange Act. However, there doesn’t seem to be any kind of standing for Berk to argue the claim anyway.

According to Stephen Palley, who works with Anderson Kill P.C. as an attorney,

“They tried to use the CFTC vs McDonnell case, and in that case, that's a case where the court said the CFTC has enforcement jurisdiction over claims of contracts and the court said ‘yeah you're not the CFTC, so because you don't have any futures-related claim that was thrown out.”

Right now, it is up to Berk and his attorneys to decide if they want to file an amended complaint, which they seem to intend to do. An attorney from Berk’s team, Lynda Grant, notified CoinDesk of their plan to update the complaint within the timeline provided, but there are no other details about how aggressive they will be or the new point that they want to get across.

Even though the case is only temporarily dismissed, Coinbase hasn’t exactly won. Judge Chhabria also denied a motion from Coinbase, which would allow Berk to sit for an individual arbitration and wouldn’t allow the full trial to commence. Coinbase stood firm on their belief that the User Agreement that Berk would’ve had to sign upon registering would serve as validation for their argument. However, the judge dismissed it for now. When the amended complaint is filed, Coinbase will have the chance to initiate the motion to compel arbitration again.

Palley commented that this unique attribute of the case was worth taking note of, adding, “my view of this case is that it tells you something about the Coinbase arbitration clause.” Still, no matter what happens with the case, the ruling over the motion will probably be brought up in suits going forward.

Palley elaborated, saying,

“What happened was Coinbase moved to compel arbitration and also to dismiss, and the thing that jumped out at me was that it obviously matters a lot to them, they would prefer not to have cases heard or tried in court, they'd rather have it tried in arbitration, they have an arbitration case … but the court denied the motion saying the arbitration clause should only apply to things that are under contract.”

Ultimately, the allegation that customers were hurt because of Coinbase’s actions with market manipulation simply doesn’t follow that contract. The judge of this case also commented that the motion to dismiss had nothing to do with the user agreement. Plus,

“Assessing whether Coinbase might have engaged in market manipulation or unfair business practices does not require ‘reference to the underlying agreement or interpretation of the parties' contractual relationship.’”

Even with the opportunity to bring in the motion to compel arbitration again, it is likely that the newly amended complaint will involve even less of the user agreement than before. Palley said,

“A decent lawyer isn't going to make a losing argument when they've already lost on the point before. This change could lead the case to the courts.”

There haven’t been any comments from Palley about the claims from Berk’s suit, but he commented that,

“Lawsuits that move past a dismissal often settle. He added, “If you're a class, if I'm one person and I've lost $50 that's not very much, but if I'm … representing 10 million people and we've all lost $10 then that's $100 million. That's the advantage of a class action.”

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