A lawsuit filed against U.S.-based cryptocurrency exchange Coinbase has recently seen a judge rule the firm didn’t act fraudulently during the launch of Bitcoin Cash.
According to a court order, U.S. District Judge Vince Chhabria of the Northern District of California threw out claims that the trading platform committed fraud in the cryptocurrency’s launch, which saw it halt trading shortly after starting it when prices surged.
The document notably absolves Coinbase CEO Brian Armstrong and its head of product David Farmer from fraud, noting that while the allegations paint a picture of an “incompetent launch” they don’t “outline a coherent account of fraud by Coinbase, Armstrong, and Farmer.”
At the time of the listing Bitcoin Cash was a four-month-old cryptocurrency that still hadn’t been added to most major cryptocurrency exchanges. Shortly after Coinbase announced it was adding the cryptocurrency, however, its price surged.
Once added to the exchange, Bitcoin Cash’s price started surging to as much as $9,500 before orders were halted due to “significant volatility.” The decision to halt trading was, the judge wrote, an indication of dysfunction.
This saw some claim insider trading took place ahead of the listing, as insiders were accused of buying BCH before the listing was public. An investigation conducted by Coinbase itself found no insider trading, however.
Judge Chhabria noted the plaintiffs identified three potential laws regarding Coinbase’s potential wrongdoing. These regard the Commodities Exchange Act, the FinCEN rules, and New York state regulations. He added:
Even assuming Bitcoin Cash is a commodity subject to the Commodities Exchange Act, the complaint does not sufficiently explain how the launch manipulated the market for Bitcoin Cash or for Bitcoin. Nor does it plausibly or coherently describe Coinbase and Armstrong’s motive to manipulate the prices.
The plaintiffs will, nevertheless, be able to move forward with a negligence lawsuit. The cryptocurrency’s launch was led to “incompetence born of haste,” the judge ruled. The complaint, Chhabria said, lays out a “plausible account” that Coinbase failed in its “duty to maintain a functional market.”
The launch was potentially rushed as the Chicago Mercantile Exchange (CME) started trading bitcoin futures the day before the listing, which Chhabria said could explain why buyers’ orders were filed to such high prices.