Judge Issues Temporary Dismissal in Bitcoin Cash Lawsuit Against Coinbase

A federal judge has dismissed a lawsuit against Coinbase alleging the exchange hurt investors when it listed bitcoin cash by allowing insider trading.

On Tuesday, U.S. District Judge Vince Chhabria, from the Northern District of California, dismissed a lawsuit filed by Arizona resident Jeffrey Berk against Coinbase, who claimed that the exchange allowed insiders to trade bitcoin cash prior to its listing on the exchange.

In the original complaint, filed in March, Berk claimed that "Unsurprisingly, those who had been tipped off , immediately swamped Coinbase and the GDAX [sic] with buy and sell orders, thinning the liquidity but obtaining BCH at fair prices. The market effect was to unfairly drive up the price of BCH for non-insider traders once BCH came on line at the Coinbase exchange."

In dismissing the suit, Judge Chhabria wrote that "Berk's complaint does not sufficiently articulate the legal basis for his claims," and explaining that "a reader of the complaint is thus left wondering what Coinbase should have done differently, or why the rollout of bitcoin cash would have gone more smoothly had Coinbase done whatever Berk thinks is appropriate."

A representative for Coinbase declined to comment on the case.

In his ruling, Chhabria denied a Coinbase motion to compel arbitration, which sought to force Berk to sit for individual arbitration, rather than continue the case to a potential trial.

Coinbase claimed it had the right to compel arbitration according to the User Agreement Berk had to have agreed to when signing up for the exchange.

"What happened was Coinbase moved to compel arbitration and also to dismiss, and the thing that jumped out at me was that it obviously matters a lot to them, they would prefer not to have cases heard or tried in court, they'd rather have it tried in arbitration, they have an arbitration case ... [but] the court denied the motion saying the arbitration clause should only apply to things that are under contract."

In his ruling, the judge noted that Coinbase's motion to dismiss did not reference the user agreement, and "Assessing whether Coinbase might have engaged in market manipulation or unfair business practices does not require 'reference to the underlying agreement or interpretation of the parties' contractual relationship.'".

While Coinbase has the option to file another motion to compel arbitration, the amended complaint is likely to move even further away from the user agreement than the original.