Coinbase hit by class action lawsuit: Bitcoin cash trading may contain insider information

Last year, some customers expressed dissatisfaction and complaints about the activities related to the listing of BCH on the Coinbase trading platform. A person named Jeffrey Berk and others with similar situations filed a class action lawsuit in California, accusing the exchange of insider trading. The 18-page lawsuit alleges that BCH was launched on December 18, 2017, and the company provided relevant information to employees as early as one month before its launch. The case requires a jury to try Coinbase Inc., GDAX, David Farmer and Brian Armstrong, the founder of the Coinbase exchange.

According to Berk’s complaint, customers who bought, sold, or had trading orders on the BCH listing date suffered monetary losses because his company provided its employees with gossip before BCH went online.

The class action lawsuit states: “On December 19, 2017, a month after Coinbase provided internal information to its employees, the exchange suddenly opened up BCH buying and selling services just minutes after publishing the announcement of the launch of BCH trading.”

Unsurprisingly, those who got the news immediately bought and sold between Coinbase and GDAX, acquiring BCH at a reasonable price. Once BCH was listed on the Coinbase exchange, the market effect unfairly and instantly pushed up the price of BCH for non-insiders.

Those who did not get the inside information were not so lucky, because the exchange suspended related trading activities after those who got the information sold their BCH. Then the exchange tried to put it back online the next day but soon stopped trading again.

San Francisco-based Coinbase responded to allegations of insider trading in a blog post on Dec. 19. In the post, the company's founder Brian Armstrong described the company's insider trading and confidentiality policies. Armstrong said that before the launch of BCH, the company already had an internal policy in place, and all employees were prohibited from trading with outsiders and talking about the launch with outsiders.

The Coinbase founder elaborated: “This was communicated to employees across multiple channels regarding trading restrictions that applied to any individual trading activity on the platform and remains in effect.”

"As CEO, I take the confidentiality of non-public material very seriously. Within hours of this announcement, we were investigating the matter due to the price increase. If we find evidence of any employee or contractor violating our policies - either directly or indirectly - I will not hesitate to immediately terminate that employee and take appropriate legal action."

It remains to be seen how the California-based Berk vs. Coinbase case progresses and what the final outcome will be.