Securities Regulation Daily Wrap Up, BLOCKCHAIN—D.N.J.: Court affirms order greenlighting fraud action against Coinbase, (Apr 9, 2025)

By Lene Powell, J.D.

Competing pleading standards did not merit reconsideration of a ruling that Coinbase misled investors about proprietary trading activity.

A federal district court declined to reconsider an earlier order allowing certain fraud claims to proceed against Coinbase Global, Inc., finding that no legal or factual issues had been overlooked. Coinbase argued the plaintiffs did not adequately plead allegations as to proprietary trading under a more liberal Rule 8 pleading standard, but the court said Coinbase did not adequately raise the issue in prior proceedings (In re Coinbase Global, Inc. Securities Litigation, No. 22-cv-04915 (D.N.J. Apr. 8, 2025)).

Prior proceedings. The court found in a September 5 order that the plaintiffs adequately pleaded some material representations under the Exchange Act and Securities Act. The court found:

• The plaintiffs adequately pleaded under the Exchange Act that Coinbase misled investors about risks to customer assets in the event of bankruptcy, as well as the risk that Coinbase might become subject to an SEC enforcement action.

• The plaintiffs did not adequately allege under the Exchange Act that Coinbase engaged in proprietary trading.

• The plaintiffs adequately pleaded claims under the Securities Act. These did not trigger a heightened pleading standard, so the more liberal Rule 8 pleading standard applied to those Securities Act claims, rather than Rule 9(b).

Nothing overlooked. In a motion for reconsideration, Coinbase argued that the court overlooked that the plaintiffs “failed to plead falsity under any pleading standard” as to the proprietary trading claim. Coinbase said the claim should be dismissed because the contemporaneous falsity ground the court identified as warranting dismissal under the Exchange Act “applied with equal force under Rule 8.”

However, the court found that it did not overlook any legal or factual issue. Pointing to language in the order, the court said it had highlighted that neither party submitted proper arguments on whether the allegations were sufficiently pled under the Rule 8 standard.

“The Court made explicit its acknowledgement of Defendants’ passing references to Rule 8 or any other standard but stated ‘the parties did not address... the liberal pleading standard of Rule 8,’ the court wrote.

The court said that new arguments cannot serve as a basis for reconsideration and Coinbase could not revive its previous motion to dismiss with a more detailed argument that was not raised in the first instance. Therefore, the court disallowed Coinbase’s newly robust arguments and case cites and denied the motion for reconsideration.

This is case No. 22-cv-04915.

Judge: Martinotti, B.

Attorneys: James E. Cecchi (Carella Byrne Cecchi Brody Agnello, P.C.) for Sjunde Ap-Fonden. Christopher L. Ayers (Seeger Weiss LLP) for Vijay Patel, Ryan Firth, Zvia Steinmetz and Dennis Dean Laffoon. Kevin M. McDonough (Latham & Watkins) for Coinbase Global, Inc., Brian Armstrong, Alesia J. Haas, Paul Grewal, Jennifer Jones, Marc Andreesseen, Frederick Ernest Ehrsam III, Fred Wilson, Kathryn Haun and Gokul Rajaram.

Companies: Coinbase Global, Inc.

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