Bitcoin Cash’s launch on Coinbase was controversial. The price of the newly added asset skyrocketed to nearly $9,000 - more than $6,000 above the market price of $2,900 (at the time). The “significant volatility” caused by the influx of market demand was enough to overwhelm Coinbase and force them to freeze trading, resulting in a low liquidity situation that affected the price dramatically.
However that controversy paled in comparison to what a new class action lawsuit alleges. In a suit filed on Thursday, it is alleged that Coinbase employees directly benefited in a significant way from trading Bitcoin Cash on the nonpublic knowledge that the Bitcoin fork would soon be listed on the popular cryptocurrency exchange.
The class action suit includes “all Coinbase customers who placed purchase, sale or trade orders with Coinbase… during the period of December 19, 2017 through and including December 21, 2017... and who suffered monetary loss as a result of Defendants’ wrongdoing.”
The complaint filed by Coinbase customer Jeffrey Berk asserts that insider trades drove up the price of Bitcoin Cash in the moments leading up to its debut on Coinbase, causing the value to artificially increase by 200 percent. It claims customers were then forced to pay prices that were manipulated and artificially inflated.
Despite the claim focusing its allegations on insider trading, because Bitcoin Cash is not regulated as a security, the claim also includes common law negligence and California’s Unfair Competition Law. The suit was filed in a U.S District Court in Northern California.
After Bitcoin Cash was listed at Coinbase, senior manager Brian Armstrong published a blog post, where he stated that Coinbase would be conducting an internal investigation and that employees would be held to company trading policies:
“Given the price increase in the hours leading up the announcement, we will be conducting an investigation into this matter. If we find evidence of any employee or contractor violating our policies — directly or indirectly — I will not hesitate to terminate the employee immediately and take appropriate legal action.”
Coinbase has yet to follow up with its findings, if any, that were discovered during the investigation. Coinbase has also not yet issued a statement in response to the allegations.