Lawsuit Claims Coinbase, Kraken Prioritize Profits Over Protecting Users from Crypto Fraud

News | June 20, 2024 By:

On Wednesday, June 5, 2024, Yuyuan Gao filed lawsuits against major cryptocurrency exchanges Coinbase Inc. and Kraken, accusing them of negligence that led him to fall victim to an apparent crypto scam.

In suits filed in California state court, Gao alleged that he unknowingly transferred nearly $200,000 to scammers after being misled to believe the funds would be invested through the Coinbase and Kraken platforms. The scammers had convinced Gao to convert his money to cryptocurrencies and send it to their digital wallets using the exchanges.

However, the suits claim Coinbase and Kraken are more interested in profiting from transaction fees than preventing fraud. In addition to charging fees for deposits, withdrawals, and trades, the exchanges allegedly take a cut of “staking rewards” that allow users to earn interest by holding certain cryptocurrencies on the platforms.

“Instead of protecting customers, Gao argues Coinbase and Kraken operate more like casinos by encouraging transactions to earn more fees from money already in their systems,” the suits state.

Gao’s lawyers contacted both exchanges seeking to recover the lost funds but say they were told no compensation would be provided. The suits accuse Coinbase and Kraken of negligence, breach of fiduciary duty, and unjust enrichment for allegedly failing to adequately screen for scams and prioritizing profits over customer safety.

A Kraken spokesperson denied responsibility, stating Gao had knowingly transferred funds and installed malware on his own computer. The exchange said it would address the allegations in court.

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