Future Tense

Customers Have Filed Three Lawsuits Against The Most Popular Bitcoin Trading Platform

Coinbase has been accused of having negligent security practices and failing to prevent insider trading.
Coinbase has been accused of having negligent security practices and failing to prevent insider trading.

Ars Technica reports that disgruntled customers have filed three federal lawsuits over the past month against Coinbase, likely the most popular platform for trading cryptocurrencies.

Coinbase claims to host more than 10 million users and to have facilitated more than $50 billion worth of cryptocurrency trading. The suits filed against it include allegations of lax security and insider trading and have hit the company as it tries to add more regulatory expertise to its staff in preparation for a potential government crackdown on crypto startups.

The earliest lawsuit, filed on February 13, concerns a New York City resident named Ezra Sultan who says he lost $100,000 in litecoin due to a scam. Sultan had tried calling Coinbase’s customer service line for help with a transaction, but dialed the wrong number. Sultan ended up disclosing his username, passcode, and other account information to the swindler on the other end of the call, and he subsequently lost 545 litecoins. The lawsuit charges that Coinbase was negligent in providing security to its customers, as it allegedly did not require the scammer to enter a two-factor authentication code to transfer the funds. One of the counts reads, in part, “Coinbase knew or should have known that its security measures for its phone system, website or exchange platform, were inadequate and thus, exposed and rendered it susceptible and vulnerable to hackers or scammers who could pose as Coinbase customer service support personnel…”

The plaintiff in another suit, filed last Thursday, accuses Coinbase employees of trading using insider knowledge that the platform would be launching services for a currency called Bitcoin Cash a month before it was announced to the public on Dec. 19. After users and a number of media outlets pointed out suspicious trading activity, Coinbase CEO Brian Armstrong claimed that the company would investigate the matter. As the suit argues, however, the results of the investigation have not been made public.

The last lawsuit, filed on Friday, comes from two men who say that they were unable to claim bitcoin that people had transferred to them using Coinbase. The company had sent them in an email in the fall 2013 with a link to retrieve the cryptocurrency, but the links were unusable when the plaintiffs tried to use them in February 2018. Coinbase still holds these transferred funds if they go unclaimed, but the men and their lawyers argue that they should go to the state so that people would have another chance to retrieve them. The filing states, “Imagine writing a cashier’s check to a friend. The bank withdraws funds from your account, but your friend never cashes the check. Does the bank get to keep the funds? The law clearly says ‘no.’”

Slate has reached out to Coinbase for comment on the suits.

Aaron Mak is a Slate editorial assistant.