Judge Dismisses Class Action Lawsuit Against Coinbase Over TerraUSD Collapse

On Monday, July 15, 2024, the United States District Court for the Northern District of California granted a motion to dismiss filed by cryptocurrency exchange Coinbase in a proposed class action lawsuit.

Larry Pearl, along with other Coinbase users, had filed a lawsuit against Coinbase and its parent company Coinbase Global claiming they misrepresented risks associated with the stablecoin TerraUSD (UST) and failed to properly disclose important details. Pearl and others purchased UST through Coinbase in May 2022, only to lose significant value when UST broke from its 1-to-1 dollar peg and plunged in value later that month. The plaintiffs alleged Coinbase misled investors through its educational webpages about stablecoins by not clarifying that UST was based on an algorithm instead of being backed by reserve assets. They also argued important details about UST’s stability mechanism were omitted.

However, U.S. District Judge Maxine Chesney dismissed all nine of the plaintiffs’ claims, finding they did not adequately demonstrate Coinbase made any material misrepresentations or had a duty to disclose more information. While the plaintiffs cited Coinbase describing stablecoins as pegged to reserve assets like the dollar, Judge Chesney noted Coinbase elsewhere made clear UST was algorithm-based and not backed by dollars. The judge also pointed out the educational pages warned stablecoins were only designed to reduce volatility rather than guarantee results.

On the omission allegations, Judge Chesney found Coinbase had no duty to disclose more details about UST’s algorithm nature or the company’s investment in Terraform Labs. The judge ruled the plaintiffs failed to show partial representations by Coinbase triggered additional disclosure duties, or that only Coinbase had exclusive knowledge of the allegedly omitted facts. Several of the claims were dismissed for additional reasons, such as California law not covering transactions involving cryptocurrencies in the case of alleged violations of consumer protection statutes.

The ruling dismissed all nine causes of action in the lawsuit and denied without prejudice Coinbase’s separate motion to strike class action allegations, allowing it to be refiled if the plaintiffs amend their complaint. It represents a win for Coinbase in defending against the proposed class action, while leaving the door open for the plaintiffs to try refiling with a strengthened legal case.

Please contact BlockTribune for access to a copy of this filing.