Securities Regulation Daily Wrap Up, BLOCKCHAIN—S.D.N.Y.: Court reaffirms dismissal of securities claims against Coinbase, (May 8, 2026)

By Suzanne Cosgrove

The court determined that complaints tied to alleged crypto transactions and exchange activities did not satisfy pleading requirements under the PSLRA.

U.S. District Judge Jed S. Rakoff of the Southern District of New York reaffirmed his April 22, 2026, “bottom line” order, granting a motion to dismiss federal securities claims against Coinbase, Inc. brought by individual customers of the crypto exchange, and compelling the rest of the non-securities claims to arbitration (Heabeart v. Coinbase, No. 1:25-cv-09197-JSR (S.D.N.Y. May 7, 2026)).

The court’s May 7, 2026, opinion provides an explanation for its earlier order.

Background. At the center of the case are customer losses linked to Wrapped LUNA (WLUNA), a digital asset listed for trading by Coinbase in August 2021. At the time, Coinbase stated WLUNA was an Ethereum token intended to represent Terra (LUNA) on the Ethereum blockchain. Through a WLUNA partner, one LUNA could be exchanged for one WLUNA, and vice versa. As noted in the filing, LUNA’s value fell in early May 2022, which affected the value of WLUNA. On May 13, 2022, Coinbase announced that it would suspend trading in WLUNA effective May 27, 2022. The plaintiffs allege that Coinbase characterized this trading suspension as temporary in its public announcement and in replies to individual customer inquiries.

In addition, following LUNA’s collapse, Terraform Labs, the creator of LUNA, executed a fork of the Terra blockchain and issued a new token, also called LUNA (New LUNA), renaming the original token LUNA Classic (LUNC).

Terraform then distributed New LUNA to some holders of LUNC, but to participate in that exchange, WLUNA holders had to move their WLUNA off Coinbase, “unwrap” it, and convert it to LUNC using Terraform’s tools—effectively impossible because of Coinbase’s trading suspension, which allegedly was never lifted. Plaintiffs charged that Coinbase also received New LUNA tokens but opted not to distribute them to WLUNA holders.

Further, in a lengthy second amended complaint, the plaintiffs also alleged that certain statements provided by Coinbase were materially inaccurate relative to verifiable blockchain data.

Reasoning. The court concluded in its April 22 order that all the plaintiffs’ non-securities claims must be referred to arbitration. Those claims include a RICO claim, claims of interference with ownership rights, unjust enrichment, breach of contract, and the breach of the covenant of good faith and fair dealing.

However, the court said the plaintiffs’ securities claims must be dismissed for failing to bring Section 10 (b) claims in a timely manner—within two years after the discovery of a violation. The Section 10 claims included “falsely representing WLUNA was pegged to LUNA when it was not, and … falsely characterizing the WLUNA trading suspension as temporary.”

Importantly, the judge also stated the plaintiffs failed to meet the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA).

Citing Wilbush v. Ambac Fin. Grp., he said, “The heightened pleading standard means that a complaint ‘cannot survive a motion to dismiss where the complaint fails to explain why [the alleged] statements and omissions were fraudulent.’”

Aside from their untimeliness, “none of the plaintiffs’ three claims of fraudulent misstatement meet these heightened requirements,” he concluded.

The case is No. 1:25-cv-09197-JSR.

Judge: Rakoff, J.

Attorneys: Mario P. Tafur (Bulldog Law, PC) for Joel Heabeart. Randall Scott Luskey (Paul, Weiss, Rifkind, Wharton & Garrison LLP) for Coinbase Inc.

Companies: Coinbase Inc.

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