PATEL v. COINBASE GLOBAL, INC.

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

Case No. 2:22-cv-04915 (BRM) (LDW)

IN RE COINBASE GLOBAL, INC.

SECURITIES LITIGATION

OPINION

MARTINOTTI, DISTRICT JUDGE

Before the Court is a Motion to Dismiss (ECF No. 78) Plaintiffs’ Second Amended

Consolidated Class Action Complaint1 (“SAC”) (ECF No. 68) pursuant to Federal Rules of Civil

Procedure 9(b) and 12(b)(6) filed by Defendants Coinbase Global, Inc. (“Coinbase” or the

“Company”), Brian Armstrong (“Armstrong”), Alesia J. Haas (“Haas”), Emilie Choi (“Choi”),

Paul Grewal (“Grewal”), Jennifer Jones (“Jones”), Marc Andreessen (“Andreessen”), Frederick

Ernest Ehrsam III (“Ehrsam”), Kathryn Haun (“Haun”), Kelly Kramer (“Kramer”), Gokul Rajaram

(“Rajaram”), and Fred Wilson (“Wilson”) (collectively, “Defendants”).2 Plaintiffs filed an

Opposition (ECF No. 79), and Defendants filed a Reply (ECF No. 80). Having reviewed the

parties’ submissions filed in connection with the Motion and having declined to hold oral argument

pursuant to Federal Rule of Civil Procedure 78(b), for the reasons set forth below and for good

1 Lead Plaintiff Sjunde AP-Fonden (“Lead Plaintiff”) and Additional Plaintiffs Ryan R. Firth and

Zvia Steinmetz (collectively, “Additional Plaintiffs”) bring this putative class action on behalf of

themselves, a proposed class, and a proposed subclass. (ECF No. 68.) Lead Plaintiff is a Swedish

public pension fund with over $100 billion in assets under management. (Id. ¶ 40.)

2 Defendants Armstrong, Haas, Choi, and Grewal are collectively hereinafter referred to as the

“Executive Defendants.” Defendants Andreessen, Ehrsam, Haun, Kramer, Rajaram, and Wilson

are collectively hereinafter referred to as the “Director Defendants.” Defendants Coinbase,

Armstrong, Haas, Jones, and the Director Defendants are collectively hereinafter referred to as the

“Securities Act Defendants.”

cause having been shown, Defendants’ Motion to Dismiss (ECF No. 78) is GRANTED IN PART

and DENIED IN PART.

I. BACKGROUND

A. Factual Background

For the purposes of the Motion to Dismiss, the Court accepts the factual allegations in the

SAC as true and draws all inferences in the light most favorable to Plaintiffs. See Phillips v. Cnty.

of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008). The Court also considers any “document integral

to or explicitly relied upon in the complaint.” In re Burlington Coat Factory Sec. Litig., 114 F.3d

1410, 1426 (3d Cir. 1997) (quoting Shaw v. Digit. Equip. Corp., 82 F.3d 1194, 1220 (1st Cir.

1996)).

This is a federal securities putative class action on behalf of persons and entities that

purchased or otherwise acquired: (i) Coinbase common stock from April 14, 2021 through June 5,

2023, inclusive (the “Class Period”), and were damaged thereby; and (ii) Coinbase common stock

in or traceable to Coinbase’s Registration Statement and/or Prospectus (collectively, the “Offering

Materials”). (ECF No. 68 at 1.) Generally, Plaintiffs allege Defendants misrepresented, concealed,

and/or omitted significant, material aspects of Coinbase’s business during the Class Period which

enabled Defendants to reap financial benefits such as cashing out existing shares at inflated values

following Coinbase’s public listing.3 (See generally id.)

Coinbase is a cryptocurrency platform launched in 2012 that enables its customers to buy,

sell, and store digital assets.4 (Id. ¶¶ 1, 43.) The platform was originally designed only for Bitcoin,

3 In Counts III–V, Plaintiffs allege the Securities Act Defendants acted negligently. (See generally

id.)

4 Digital assets, or “crypto assets,” “are umbrella terms for any asset built using blockchain

technology. A blockchain is a secure digital ledger or peer-to-peer database that maintains a record

but has exponentially expanded in recent years, and now supports over 240 crypto assets. (Id.

¶ 50.) Coinbase generates “substantially all” of its revenue from the transactions fees its retail

customers pay to trade crypto assets. (Id. ¶¶ 2, 68–69.) During the Class Period, Coinbase’s success

depended on its ability to increase its customer base and its transaction-fee revenue. (Id. ¶¶ 3, 70.)

One of the Company’s main obstacles to growth was persuading customers that the platform was

a safe place to invest. (Id. ¶¶ 4, 93.) Many potential customers were deterred by cryptocurrency’s

unsafe and unregulated reputation, underscored by: (i) customers’ losses on other cryptocurrency

exchanges due to insolvency or hacking; and (ii) the fact no government entity insures crypto

assets against such losses. (Id. ¶¶ 4, 94–95.) As a result, Coinbase’s ability to grow its customer

base was dependent on assuring potential customers that Coinbase could keep assets safe. (Id.

¶¶ 4, 93.) Defendants recognized this dependence and repeatedly emphasized Coinbase was a

“trusted” place to safely store customer assets. (Id. ¶¶ 89, 129.) Analysts thereafter noted

Coinbase’s advantage as a “trusted platform with a focus on security.” (Id. ¶ 91.)

On January 28, 2021, Coinbase announced plans to go public through a direct listing (the

“Direct Listing”).5 (Id. ¶¶ 5, 72.) Armstrong—a co-founder, the chief executive officer, and

chairman of the Company’s board—was highly motivated to complete the Direct Listing as doing

so would allow him to cash out his shares and entitle him to a compensation package valued at

over $3.7 billion. (Id. ¶¶ 6, 81–82.) During this time, Defendants knew investors were focused on

of all transactions that occur on the network.” (Id. ¶ 51.)

5 In a direct listing, an alternative to an initial public offering (“IPO”), the shareholders of the

company sell existing shares of the company directly to the public. (Id. ¶¶ 5, 73.) A traditional IPO

usually includes a “lock-up” period which restricts insiders from selling until a certain time period

has passed, whereas in a direct listing, the company’s board of directors decides whether to enforce

a lock-up period on the company’s insiders. (Id. ¶ 74.) Here, members of Coinbase’s management

petitioned the Company’s board of directors to remove any lock-up restrictions, and ultimately,

the Company’s board of directors elected to proceed with no lock-up period. (Id.)

the stability and security of Coinbase’s transaction fee revenues; therefore, Defendants made

numerous representations about Coinbase’s ability to generate revenue and the attendant risks to

its business in the Offering Materials contemporaneously filed with the Direct Listing. (Id. ¶ 9.)

On April 14, 2021, Coinbase “made a rousing debut on Wall Street,” with shares opening

at $381 per share which was over $100 above its initial reference price. (Id. ¶¶ 8, 122–24.) The

Executive Defendants and other Coinbase insiders collectively sold over $5 billion in common

stock through the Direct Listing. (Id. ¶¶ 8, 125–26.) Armstrong, Choi,6 and Haas7 made over $290

million, $223 million, and $99 million in sales proceeds, respectively, in the first two days of the

Direct Listing. (Id. ¶¶ 125, 387.) Armstrong was motivated to keep Coinbase’s stock price high as

the Company had to maintain certain stock prices for 60 trading days in order for Armstrong to

unlock “tranches” of stock options under his compensation plan. (Id. ¶¶ 81–84, 386.) On July 8,

2021, Armstrong received the first tranche valued at over $697 million. (Id. ¶ 386.) In total,

Armstrong, Choi, Haas, and Grewal8 netted gross proceeds of approximately $323 million, $429

million, $115 million, and $65 million, respectively, from shares sold during the Class Period. (Id.

¶ 125.)

6 Choi served as Coinbase’s Chief Operating Officer (“COO”) and President throughout the Class

Period. Choi has served as the Company’s COO since June 2019, and as the Company’s President

since November 2020. (ECF No. 46.)

7 Haas has served as Coinbase’s Chief Financial Officer since April 2018, and was a signatory to

the Company’s filings submitted to the U.S. Securities Exchange Commission (the “SEC”) during

the Class Period. (Id. ¶ 45.)

8 Grewal served as Coinbase’s Chief Legal Officer from July 2020 through the end of Class Period.

(Id. ¶ 47.) Grewal did not sell any shares during the first two days of the Direct Listing. (Id. ¶ 125.)

B. Defendants’ Alleged Misrepresentations and Omissions9

1. The Bankruptcy Risk Statements

During the Class Period, Defendants warned investors in a series of disclosures (the “Asset

Safety Disclosures”) that “[o]ur failure to safeguard and manage our customers’ . . . assets could

adversely impact our business, operating results and financial condition.” (Id. ¶¶ 96–97, 258–59,

270, 273, 276, 284.) Coinbase acknowledged it faced two risks in safeguarding customers’ assets:

(i) hacking; and (ii) the “loss or destruction of private keys.” (Id.) Plaintiffs allege Defendants

misleadingly concealed a third risk to the security of customers’ assets: risks associated with a

potential bankruptcy of Coinbase. (Id. ¶¶ 11, 98.) Specifically, in the event Coinbase filed

bankruptcy, its customers’ assets could become part of the bankruptcy estate rendering those

customers’ assets as unsecured credits with little chance of recovering their deposits. (Id.)

In 2019, Defendants investigated whether its institutional customers’ assets would become

part of the Company’s estate if the Company became insolvent. (Id. ¶¶ 13, 105–09.) Following the

investigation, Coinbase submitted a comment letter to the SEC (the “SEC Comment Letter”),

which demonstrates Defendants’ understanding that the commingling of customers’ assets could

lead to adverse consequences in the event of a bankruptcy. (Id.) Thereafter, Defendants took

affirmative steps to mitigate the potential bankruptcy risks to institutional customers’ assets by not

9 Plaintiffs’ allegations challenging Defendants’ actions pursuant to the Securities Exchange Act

of 1934 (the “Exchange Act”) can be effectively grouped into three categories of Coinbase’s failure

to disclose, misrepresent, and/or misleadingly conceal: the potential loss of customers’ assets in

the event of a bankruptcy; Coinbase’s engagement in proprietary trading; and regulatory risks

associated with Coinbase’s business. These three categories detailed below form the basis of

Plaintiffs’ request for relief. The Court will hereinafter refer to these three categories as the

“Bankruptcy Risk Statements”, the “Proprietary Trading Statements”; and the “Regulatory

Statements.” They will be collectively referred to as the “Challenged Statements.” Defendants

provided an Appendix which listed 81 challenged statements from the SAC and grouped them into

similar categories. (ECF No. 78-2.) The Court reviewed each of the challenged statements, but

only provides summaries of these categories.

commingling assets and invoking the protection of the Uniform Commercial Code. (Id. ¶¶ 14–16,

112–20.) Plaintiffs allege Defendants knew Coinbase had not taken steps to protect its retail

customers; instead, Defendants had increased the risk to customers’ assets by commingling those

assets with others in an omnibus account. (Id.)

On March 24, 2022, the SEC published Staff Accounting Bulletin 121 (“SAB 121”), which

provided that there were “significant legal questions surrounding” how customers’ crypto assets

“would be treated in a court proceeding arising from an adverse events (e.g., fraud, loss, theft, or

bankruptcy).” (Id. ¶ 131.) The SEC advised “[t]hese risks can have a significant impact on the

entity’s operations and financial condition.” (Id.) Further, the SEC recommended that public

companies address the potential risks associated with a bankruptcy in public filings. (Defs.’ Ex.

23, SAB 121 (ECF No. 78-26 at 4)); see also ECF No. 68 ¶ 132.)

Shortly thereafter, on May 10, 2022, Coinbase filed its quarterly Form 10-Q report which

revised the Asset Safety Disclosures and disclosed the asset safety risk in compliance with SAB

121. (Id. ¶ 231.) As a result of this disclosure, Coinbase’s stock price declined more than 26%.10

(Id. ¶ 233.) Plaintiffs allege Defendants knew this asset safety risk was highly material to investors,

as evidenced by Coinbase’s concession that it was likely customers would find “custodial services

more risky,” resulting in a “discontinuation or reduction in use of [Coinbase’s] platform” if the

asset safety risk had been disclosed earlier. (Id. ¶¶ 103, 121.) Further, after the Company filed the

May 10, 2022 Form 10-Q report, Armstrong conceded that Coinbase: “should have updated our

retail terms sooner” to provide retail customers with “the same protections” as institutional

customers (id. ¶¶ 121, 232); “didn’t communicate proactively when this risk disclosure was

added,” (id.); knew that even the “protections” included for institutional clients “have not been

10 Analysts attributed the decline to the updated Asset Safety Disclosures. (Id. ¶¶ 234–37.)

tested in court” and did not guarantee safety (id. ¶¶ 101, 111, 232).

2. The Proprietary Trading Statements

Prior to the Class Period, the market was concerned Coinbase might engage in proprietary

trading of crypto assets—i.e., trading with Coinbase’s own money. (Id. ¶¶ 17–18.) When asked

whether Coinbase did or would proprietarily trade, Defendants issued unequivocal denials in

March and December 2021. (See, e.g., id. ¶¶ 18, 138–39 (Coinbase “does not proprietarily trade

against our clients.”); id. ¶ 140 (“[W]e do not plan to engage in regular trading of crypto assets.”);

id. ¶¶ 18, 142 (Coinbase “do[es] not engage in proprietary trading.”). In various SEC filings during

the Class Period, Coinbase disclosed that it purchased crypto as assets as “long-term” investments,

and also to “fulfill customer transactions,” but did “not plan to engage in regular trading of crypto

assets.” (Id. ¶¶ 294–97, 300–08, 312–15, 325–38.)

On September 22, 2022, the Wall Street Journal (“WSJ”) published an article (the “WSJ

Article” or the “September 22, 2022 WSJ Article”) revealing Coinbase’s alleged proprietary

trading venture which resulted in Coinbase’s stock price dropping 6.9%. (Id. ¶¶ 32, 241–43; Defs.’

Ex. 1, September 22, 2022 WSJ Article (ECF No. 78-4).) The WSJ reported Coinbase formed a

proprietary trading unit in July 2021 and hired at least four Wall Street traders with the intent to

use the Company’s own cash to trade crypto on behalf of clients.11 (Id. ¶ 144.) By early 2022, the

proprietary trading unit had built sophisticated trading systems and used those systems to trade

$100 million raised through a structured note. (Id. ¶ 147.) Although this unit was allegedly

profitable for Coinbase, the WSJ detailed that the Company “discouraged” employees “from

sharing information about the new trading business or discussing it in internal communications.”

11 Based on the WSJ Article, Plaintiffs allege Haas took part in the creation of the proprietary

trading unit. (Id. ¶¶ 144, 242.)

(Id. ¶ 242.) Thereafter, on the same date, Coinbase issued a blog post which provided “Coinbase

does not operate a proprietary trading business or act as a market maker.” (Defs.’ Ex. 6, September

22, 2022 Blog Post (ECF No. 78-9 at 41).) The Company also noted it “does, from time to time,

purchase cryptocurrency as principal, including for our corporate treasury and operational

purposes. [But] [w]e do not view this as proprietary trading because its purpose is not for Coinbase

to benefit from short-term increases in value of the cryptocurrency being traded.” (Id.; see also

ECF No. 68 ¶ 244.) Market commentators reacted negatively to the WSJ article and reported that

“Coinbase’s foray into prop trading could fray the lines of trust between the company’s executives

and its investors.” (Id. ¶¶ 32, 245–46.)

3. The Regulatory Statements

The final category of Defendants’ challenged actions are related to Plaintiffs’ claim that

Defendants downplayed the likelihood that the SEC would bring an enforcement action. (Id. ¶¶

178, 342, 345, 357.) Plaintiffs allege Defendants continuously and knowingly concealed that

Coinbase listed crypto assets from 2019 through 2021 that it knew were likely securities to grow

its business and boost revenues. (Id. ¶¶ 25, 182–83, 379.) Since 2017, the SEC has made it clear

that many crypto assets qualify as securities, and that platforms where these securities trade must

register with the SEC to avoid an enforcement action. (Id. ¶¶ 154–66, 169–70.) The SEC has

brought multiple enforcement actions against companies for failure to register crypto asset

securities. (Id. ¶¶ 172–76.)

In 2019, Coinbase co-founded the Crypto Rating Council (the “CRC”) to create a

framework for assessing whether a crypto asset was likely a security. (Id. ¶¶ 179–81.) The

Company stated that it examined each asset before it was listed to determine whether it was a

security. (Id.) Additionally, Coinbase told investors that it was rigorously applying the framework

and only “permit[ting] trading on our core platform of those crypto assets for which we determine

there are reasonably strong arguments to conclude that the crypto asset is not a security.” (Id. ¶

188.) Analysts lauded Coinbase’s “compliance infrastructure” and called the Company’s

“rigorous[] adher[ence]” “a key differentiating factor.” (Id. ¶¶ 189–90 (alteration in original).)

By the spring of 2022, the SEC had begun actively investigating Coinbase for securities

law violations. (Id. ¶ 150.) In July 2022, the SEC and the United States Department of Justice

charged a former Coinbase manager with insider trading of crypto securities on Coinbase’s

platform. (Id. ¶ 196.) Thereafter, on July 21, 2022, the Company stated: “Coinbase does not list

securities. End of story.” (Id. ¶ 197.) Coinbase further noted that the Company “has a rigorous

process to analyze and review each digital asset—a process that the SEC itself has reviewed. . . .

[W]e remain confident that Coinbase’s rigorous review process keeps securities off Coinbase’s

platform.” (Id. ¶ 197.)

Four days after Coinbase’s denials, Bloomberg News reported that the SEC was

investigating whether Coinbase “let Americans trade digital assets that should have been registered

as securities.” (Id. ¶¶ 31, 200, 238.) Coinbase’s stock price then declined 21%. (Id. ¶ 201.)

Defendants responded by assuring investors; Grewal stated that “we are confident that our rigorous

diligence process—a process the SEC has already reviewed—keeps securities off our platform.”

(Id. ¶ 202.)

In reality, the SEC had begun to take a “totally different tone,” and told Defendants that

“we think everything other than Bitcoin is a security.” (Id. ¶¶ 151, 378.) Defendants met with the

SEC over 30 times between June 2022 and March 2023 and provided witnesses for testimony

including a witness to testify as to Coinbase’s staking services.12 (Id. ¶¶ 209, 378.) Armstrong later

conceded that they were aware of the SEC’s position by mid-2022. (Id.)

In January 2023, the SEC privately informed Defendants it was pursuing an enforcement

investigation against the Company. (Id. ¶¶ 209, 378.) Although Defendants knew Coinbase faced

“an imminent enforcement action,” Defendants continued to minimize the risks of a regulatory

action. (Id. ¶¶ 209–15.) After the SEC shut down a rival company’s staking program, Coinbase

claimed its staking services were “fundamentally different” and that “Coinbase’s staking services

are not securities.” (Id. ¶¶ 210–15.) On March 22, 2023, Coinbase disclosed it had a received a

Wells Notice from the SEC and that the potential securities fraud violations related to a “portion

of our listed digital assets” and “our staking service.” (Id. ¶¶ 33, 219, 247–48.) Based off this news,

Coinbase’s stock price dropped 14%. (Id. ¶¶ 33, 249.)

On June 6, 2023, the SEC filed a complaint (the “SEC Complaint”) alleging that Coinbase

had made crypto securities available on its platform assets “even where it recognized [they] had

the characteristics of securities,” and failed to register “with the SEC . . . thus evading the

disclosure regime that Congress has established for our securities markets.” (Id. ¶¶ 221–25, 253–

54.) The SEC investigation revealed that Coinbase added assets “even where it recognized [they]

had the characteristics of securities.” (Id. ¶¶ 25, 183, 222, 379.) The SEC Complaint detailed

Coinbase’s conduct in “elevat[ing] its interest in increasing its profits over investors’ interests, and

over compliance with the law and the regulatory framework that governs the securities markets

and was created to protect investors and the U.S. capital markets.” (Id. ¶¶ 34, 253, 405.) Thereafter,

12 In a “staking program,” crypto asset owners agree to lock up their holdings to obtain a reward

or earn interest, similar to a certificate of deposit. (Id. ¶ 23 n.1.) In Coinbase’s staking program,

“crypto owners transfer their assets to Coinbase which pools and subsequently ‘stakes’ the assets

for rewards. The Company takes a commission based on the rewards a customer receives, generally

between 15% and 35%.” (Id.)

Coinbase’s stock fell over 12%. (Id. ¶ 255.)

C. Allegations Related to Claims Brought Pursuant to the Securities Act of 1933

(the “Securities Act”)

In Counts III–V, Plaintiffs bring claims arising under the Securities Act.13 In these claims,

“Plaintiffs assert strict liability and negligence claims.” (Id. ¶ 437.) Plaintiffs assert the Securities

Act Defendants are “statutorily liable under Sections 11 and 12(a)(2) of the Securities Act for the

materially inaccurate statements contained in the Offering Materials.” (Id. ¶ 438.) Plaintiffs submit

the claims in Counts III–V “do not sound in fraud, and Plaintiffs expressly disclaim any allegations

of fraud or intentional misconduct in connection with these non-fraud claims.” (Id. ¶ 441.)

On February 25, 2021, Coinbase filed its initial Registration Statement. (Id. ¶ 444.)

Thereafter, on March 23, 2021, Coinbase filed its final amendment to the Registration Statement.

(Id.) The Company’s Registration Statement was declared effective by the SEC on April 1, 2021.

(Id. ¶ 445.) The Form S-1 was signed by Armstrong, Haas, Jones, and the Director Defendants.

(Id.) Shortly thereafter, Coinbase filed its Prospectus with the SEC, incorporating and forming part

of the Registration Statement. (Id. ¶ 446.) Coinbase stated: “You should read this prospectus and

any prospectus supplement before deciding to invest in our Class A common stock.” (Id. ¶ 447.)

The Securities Act Defendants also told investors to rely on the information provided by the

Company in the Offering Materials. (Id. ¶ 448.) Coinbase registered for the resale of up to

114,850,769 shares of Class A common stock held by registered shareholders. (Id. ¶ 449.)

Plaintiffs allege that they “acquired Coinbase common stock pursuant and/or traceable to

the Offering Materials.” (Id. ¶ 518.) Lead Plaintiff specifically alleges it made two purchases

totaling 33,696 shares on November 30, 2021, when 74% of the shares outstanding were registered

13 Count IV is only raised by Additional Plaintiffs. (Id. ¶ 523.)

pursuant to the Offering Materials. (Id. ¶ 40.) Additional Plaintiffs allege they purchased Coinbase

stock on April 14, 2021, the first day of Coinbase’s Direct Listing, at prices near the opening price

and when 88% of shares outstanding were registered pursuant to the Offering Materials. (Id.

¶¶ 41–42.) Collectively, Additional Plaintiffs allege they bought 350 shares of Coinbase common

stock. (Id.)

The claims brought pursuant to the Securities Act allege the Offering Materials “contained

untrue statements of material fact, and omitted material facts, about the Company’s business and

operations, including: (i) substantial, material risks associated with Coinbase’s ability to safeguard

its customers’ crypto assets; and (ii) Coinbase’s involvement in proprietary trading of

cryptocurrency on its own exchange.” (Id. ¶ 439; see also id. ¶¶ 452–91.) Further, Counts III–V

are “are also premised upon the Securities Act Defendants’ negligent failure to conduct a

reasonable due diligence investigation into the accuracy and completeness of the representations

contained in the Offering Materials.” (Id. ¶ 440.) Plaintiffs also allege the Offering Materials did

not disclose information that was required to be disclosed under SEC Regulation S-K. (Id.

¶¶ 492–99.)

D. Procedural History

On July 16, 2021, the original class action complaint was filed in this matter, previously

bearing the caption Patel v. Coinbase Global, Inc. et al., Case No. 2:22-cv-04915-BRM-LDW.

(ECF No. 1.) The original class action complaint named Coinbase, Armstrong, and Haas as

defendants and brought two claims pursuant to the Exchange Act. (Id.) On September 27, 2022,

another prospective plaintiff filed a class action complaint—naming Choi as an additional

defendant—in a separate action entitled Laffon v. Coinbase Global, Inc. et al., Case No. 2:22-cv-

05744-BRM-LDW. Thereafter, several Motions for Consolidation, Appointment as Lead Plaintiff,

and Approval of Lead Counsel were filed. (ECF Nos. 12, 13, 18, 20, 21, 22.) On December 12,

2022, the Honorable Leda D. Wettre, U.S.M.J. consolidated Patel and Laffon, appointed Sjunde

AP-Fonden as Lead Plaintiff, approved Sjunde AP-Fonden’s selection of Lead Counsel and

Liaison Counsel, and ordered that Case No. 2:22-cv-04915-BRM-LDW shall constitute the Master

File bearing the caption In re Coinbase Global, Inc. Securities Litigation. (ECF Nos. 49, 50.)

On February 22, 2023, Plaintiffs filed the Consolidated Class Action Complaint naming

Coinbase, Armstrong, Haas, and Choi as defendants and bringing two claims pursuant to the

Exchange Act. (ECF No. 59.) Thereafter, on May 10, 2023, Plaintiffs filed the First Amended

Consolidated Class Action Complaint (“FAC”) raising claims against Defendants. (ECF No. 62.)

The FAC brought two claims pursuant to the Exchange Act, and three claims pursuant to the

Securities Act of 1933 (the “Securities Act”). (Id.)

On July 20, 2023, Plaintiffs filed the 193-page, operative SAC raising claims against

Defendants. (ECF No. 68.) Specifically, Plaintiffs bring two causes of action under the Exchange

Act (the “Exchange Act Claims”): Count I (Violations of Section 10(b) of the Exchange Act and

SEC Rule 10b-5 Promulgated Thereunder Against Coinbase and the Executive Defendants); and

Count II (Violations of Section 20(a) of the Exchange Act Against the Executive Defendants).

Plaintiffs also bring three causes of action under the Securities Act (the “Securities Act Claims”):

Count III (Violations of Section 11 of the Securities Act Against the Securities Act Defendants);

Count IV (Violations of Section 12(a)(2) of the Securities Act Against the Securities Act

Defendants); and Count V (Violations of Section 15 of the Securities Against Armstrong, Haas,

Jones, and the Director Defendants).

On December 21, 2023, the parties filed the complete briefing related to Defendants’

Motion to Dismiss the SAC.14 (ECF Nos. 78–80.) Defendants’ Motion to Dismiss the SAC is

docketed as ECF No. 78 with the Brief in Support docketed as ECF No. 78-1, Plaintiffs’

Opposition is docketed as ECF No. 79, and Defendants’ Reply is docketed as ECF No. 80.

II. LEGAL STANDARD

A. Rule 12(b)(6)

In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a

district court is “required to accept as true all factual allegations in the complaint and draw all

inferences from the facts alleged in the light most favorable to [the non-moving party].” Phillips,

515 F.3d at 228. “[A] complaint attacked by a Rule 12(b)(6) motion to dismiss does not need

detailed factual allegations.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations

omitted). However, “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’

requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of

action will not do.” Id. (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)). A court is “not

bound to accept as true a legal conclusion couched as a factual allegation.” Papasan, 478 U.S. at

286. Instead, assuming the factual allegations in the complaint are true, those “[f]actual allegations

must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when

the plaintiff pleads factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). This

14 By Letter Order dated September 20, 2023, Judge Wettre granted the parties’ request for a 20%

extension of the page limits under Local Civil Rule 7.2. (ECF No. 70.) The parties requested

extensions in light of the SAC “which is 193 pages in 12-point font, and its complexity.” (Id.)

“plausibility standard” requires the complaint to allege “more than a sheer possibility that a

defendant has acted unlawfully,” but it “is not akin to a ‘probability requirement.’” Id. (citing

Twombly, 550 U.S. at 556). “[D]etailed factual allegations” are not required, but “more than an

unadorned, the-defendant-unlawfully-harmed-me accusation” must be pleaded; it must include

“factual enhancement” and not just conclusory statements or a recitation of the elements of a cause

of action. Id. (citations omitted). In assessing plausibility, the court may not consider any “[f]actual

claims and assertions raised by a defendant.” Doe v. Princeton Univ., 30 F.4th 335, 345 (3d Cir.

2022).

“Determining whether a complaint states a plausible claim for relief [is] . . . a

context-specific task that requires the reviewing court to draw on its judicial experience and

common sense.” Iqbal, 556 U.S. at 679. “[W]here the well-pleaded facts do not permit the court

to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not

‘show[n]’—‘that the pleader is entitled to relief.’” Id. (quoting Fed. R. Civ. P. 8(a)(2)). Indeed,

after Iqbal, conclusory or “bare-bones” allegations will no longer survive a motion to dismiss:

“[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory

statements, do not suffice.” Id. at 678. To prevent dismissal, all civil complaints must set out

“sufficient factual matter” to show that the claim is facially plausible, “allow[ing] the court to draw

the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The Supreme

Court’s ruling in Iqbal emphasizes that a plaintiff must show that the allegations of his or her

complaints are plausible. See id. at 670.

B. Heightened Pleading Standard

The Private Securities Litigation Reform Act of 1995 (the “PSLRA”) provides heightened

pleading rules that a plaintiff must satisfy in securities class actions. Institutional Invs. Grp. v.

Avaya, Inc., 564 F.3d 242, 252 (3d Cir. 2009). “The PSLRA replaced [Federal Rule of Civil

Procedure 9(b)] as the applicable pleading standard in private securities class actions. . . .

Nonetheless, ‘Rule 9(b)’s particularity requirement is comparable to and effectively subsumed by

the requirements of [15 U.S.C. § 78u–4(b)(1) of] the PSLRA.’” Rahman v. Kid Brands, Inc., 736

F.3d 237, 242 n.3 (3d Cir. 2013) (alteration in original) (quoting Avaya, 564 F.3d at 253).

Pursuant to Rule 9(b), when alleging fraud, “a party must state with particularity the

circumstances constituting fraud or mistake, although intent, knowledge, and other conditions of

a person’s mind may be alleged generally.” In re Lipitor Antitrust Litig., 868 F.3d 231, 249 (3d

Cir. 2017) (quoting Fed. R. Civ. P. 9(b)); see also United States ex rel. Moore & Co., P.A. v.

Majestic Blue Fisheries, LLC, 812 F.3d 294, 307 (3d Cir. 2016) (“A plaintiff alleging fraud must

. . . support its allegations ‘with all of the essential factual background that would accompany the

first paragraph of any newspaper story—that is, the who, what, when, where and how of the events

at issue.’” (quoting In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 217 (3d Cir. 2002)).

Accordingly, “a party must plead [its] claim with enough particularity to place defendants on

notice of the ‘precise misconduct with which they are charged.’” United States ex rel. Petras v.

Simparel, Inc., 857 F.3d 497, 502 (3d Cir. 2017) (quoting Lum v. Bank of Am., 361 F.3d 217, 223–

24 (3d Cir. 2004), abrogated in part on other grounds by Twombly, 550 U.S. at 557.

Likewise, to properly allege that a defendant made a false or misleading statement under

the heightened pleading standard of the PSLRA, a private securities complaint “must: (1) ‘specify

each statement alleged to have been misleading [and] the reason or reasons why the statement is

misleading’ . . . ; and (2) ‘state with particularity facts giving rise to a strong inference that the

defendant acted with the required state of mind.’” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551

U.S. 308, 321 (2007) (alteration in original) (quoting 15 U.S.C. §§ 78u-4(b)(1), (b)(2)). Therefore,

the PSLRA “requires that a complaint state with particularity both the facts constituting the alleged

violation, and the facts evidencing scienter, i.e., the defendant’s intention to deceive, manipulate,

or defraud.” Rahman, 736 F.3d at 241–42 (citation and internal quotation marks omitted).

“To plead falsity, Rule 9(b) and the PSLRA each demand specificity.” City of Warren

Police & Fire Ret. Sys. v. Prudential Fin., Inc., 70 F.4th 668, 680 (3d Cir. 2023). “Although the

pleading standards in Rule 9(b) and the PSLRA can be generally reconciled harmoniously for

allegations of falsity, the PSLRA’s requirements for allegations of scienter control over the more

lenient standard in Rule 9(b) for mental-state allegations.” Id. at 681 n.1 (emphasis in original)

(citing Avaya, 564 F.3d at 253 (“The PSLRA’s requirement for pleading scienter . . . marks a sharp

break with Rule 9(b).”)); Tellabs, 551 U.S. at 323–24); compare Fed. R. Civ. P. 9(b) (permitting

“[m]alice, intent, knowledge, and other conditions of a person’s mind [to] be alleged generally”),

with 15 U.S.C. § 78u-4(b)(2)(A) (requiring a particularized statement of the “facts giving rise to a

strong inference that the defendant acted with the required state of mind”).

III. DECISION

Defendants argue the SAC fails to plead a claim under Section 10(b) of the Exchange Act.

(ECF No. 78-1 at 14–42.) Specifically, Defendants submit the SAC fails to allege: a material

misstatement or omission (id. at 14–31); a strong inference of scienter (id. at 32–40); and loss

causation (id. at 40–42). Defendants also assert the SAC does not sufficiently plead claims under

the Securities Act as Plaintiffs lack standing, and in the alternative, Plaintiffs have failed to

sufficiently plead required elements for claims under Sections 11 and 12 of the Securities Act. (Id.

at 42–48.) Defendants conclude by arguing Counts II and V of the SAC should be dismissed

because Plaintiffs have not adequately pled predicate claims. (Id. at 48.) The Court addresses each

argument in turn.

A. Defendants’ Motion to Dismiss Count I of the SAC (Violations of Section 10(b)

of the Exchange Act and SEC Rule 10b-5 Promulgated Thereunder Against

Coinbase and the Executive Defendants)15

Section 10(b) of the Exchange Act makes it unlawful for any person “to use or employ, in

connection with the purchase or sale of any security . . . any manipulative or deceptive device or

contrivance in contravention of such rules and regulations as the Commission may prescribe as

necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C.

§ 78j(b). SEC Rule 10b-5(b) applies this provision and provides that it is unlawful “[t]o make any

untrue statement of a material fact or to omit to state a material fact necessary in order to make the

statements made, in the light of the circumstances under which they were made, not misleading

. . . in connection with the purchase or sale of any security.” 17 CFR § 240.10b-5(b). “The private

right of action under Section 10(b) and Rule 10b–5 . . . creates liability for false or misleading

statements or omissions of material fact that affect trading on the secondary market.” Burlington

Coat Factory, 114 F.3d at 1417. To state a claim for securities fraud under Section 10(b) and SEC

Rule 10b-5, “plaintiffs must allege (1) a material misrepresentation or omission, (2) scienter, (3) a

connection between the misrepresentation or omission and the purchase or sale of a security, (4)

reliance upon the misrepresentation or omission, (5) economic loss, and (6) loss causation.” City

of Edinburgh Council v. Pfizer, Inc., 754 F.3d 159, 167 (3d Cir. 2014) (citations omitted).

1. Determinations As to Whether Plaintiffs Have Adequately Alleged

Material Misrepresentations or Omissions

Defendants argue the Bankruptcy Risk Statements are not adequately alleged

15 Although all of the Defendants are not named as the applicable group of defendants for this

claim, the parties’ briefing exclusively referred to either individual defendants or Defendants as a

whole. The Court will therefore interchangeably refer to the applicable group of defendants as

“Defendants,” or this count’s actual named defendants. For example, the Court will at times use

“Defendants,” as the parties did, or “Coinbase and the Executive Defendants.”

misrepresentations or omissions because: (i) they do not mention bankruptcy, and therefore could

not have concealed or misled investors; (ii) “the SAC fails to allege a single fact suggesting any

bankruptcy risk, let alone a risk to customer assets in a bankruptcy, existed at the time the

challenged statements were made”; and (iii) several statements are non-actionable puffery or

opinion. (ECF No. 78-1 at 14–20; see also ECF No. 80 at 2–6.) Defendants assert the Proprietary

Trading Statements are not actionable because: (i) they are based on the WSJ Article, which was

anonymously sourced, and therefore not sufficiently reliable; (ii) the WSJ Article does not

contradict any challenged statement; (iii) Plaintiffs failed to allege contemporaneous falsity; and

(iv) forward-looking statements are immune under the PSLRA’s safe harbor provision. (ECF No.

78-1 at 20–25; see also ECF No. 80 at 6–8.) Next, Defendants submit the Regulatory Statements

are not actionable false or misleading statements as Defendants: (i) did not have a duty to disclose

their alleged understanding of the SEC’s actions; (ii) did not misleadingly minimize the risk of the

SEC’s investigation; and (iii) merely provided nonactionable opinions. (ECF No. 78-1 at 25–31;

see also ECF No. 80 at 8–11.)

In opposition, Plaintiffs counter the SAC sufficiently alleges materially false and

misleading statements. (ECF No. 79 at 13–30.) Plaintiffs assert the Bankruptcy Risk Statements

are actionable because: (i) Defendants’ statements about asset security created an affirmative duty

for Defendants to fully disclose the risk that customers’ assets would face in the event of a

bankruptcy; (ii) the omission of the risk to customers’ assets was material; and (iii) they do not

constitute puffery or opinion. (Id. at 13–22.) Plaintiffs contend Defendants’ arguments as to the

Proprietary Trading Statements are misplaced because: (i) the WSJ Article is a proper basis for

misleading and false statements; and (ii) the PSLRA’s safe harbor provision does not apply. (Id.

at 22–25.) As to the Regulatory Statements, Plaintiffs submit they are actionable, materially false

and misleading statements because: (i) Coinbase listed crypto assets that its own review process

determined were likely securities; (ii) the SEC had indicated to Defendants that most assets on the

platform were securities; (iii) Defendants admitted that Coinbase faced “an imminent enforcement

action”; (iv) Defendants had a duty to disclose material facts related to the potential SEC action.

(Id. at 25–30.)

“[A] fact or omission is material only if ‘there is a substantial likelihood that it would have

been viewed by the reasonable investor as having significantly altered the “total mix” of

information’ available to the investor.” In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1330 (3d Cir.

2002) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 231–32 (1988)). “[M]ateriality is a mixed

question of law and fact, and the delicate assessments of the inferences a reasonable shareholder

would draw from a given set of facts are peculiarly for the trier of fact.” Shapiro v. UJB Fin. Corp.,

964 F.2d 272, 281 n. 11 (3d Cir. 1992), cert. denied, 506 U.S. 934 (1992) (citing TSC Indus., Inc.

v. Northway, Inc., 426 U.S. 438, 450 (1976)). Consequently, “[o]nly if the alleged

misrepresentations or omissions are so obviously unimportant to an investor that reasonable minds

cannot differ on the question of materiality is it appropriate for the district court to rule that the

allegations are inactionable as a matter of law.” Id. (citing TSC Indus., 426 U.S. at 450).

“There is no affirmative duty to disclose all material information, but such a duty may arise

when a company chooses ‘to speak about a material subject to investors.’” In re Amarin Corp.

PLC Sec. Litig., No. 21-2071, 2022 WL 2128560, at *3 (3d Cir. June 14, 2022) (quoting Edinburgh

Council, 754 F.3d at 174); see also Williams v. Globus Med., Inc., 869 F.3d 235, 241 (3d Cir.

2017) (“Once a company has chosen to speak on an issue—even an issue it had no independent

obligation to address—it cannot omit material facts related to that issue so as to make its disclosure

misleading.”); In re Bristol-Meyers Squibb Sec. Litig., Civ. A. No. 00-1990, 2005 WL 2007004,

at *23 (D.N.J. Aug. 17, 2005) (“[A] defendant may choose silence or speech based on the

then-known factual basis, but cannot choose half-truths.” (citation omitted)). Notably, “the

question of whether disclosure was required is best left to the trier of fact, since whether a prior

disclosure is inaccurate, incomplete, or misleading in light of all of the evidence is a mixed

question of law and fact.” In re: Enzymotec Sec. Litig., Civ. A. No. 14-5556, 2015 WL 8784065,

at *15 (D.N.J. Dec. 15, 2015) (citing Weiner v. Quaker Oats Co., 129 F.3d 310, 317 (3d Cir.

1997)).

i. The Bankruptcy Risk Statements

The Court first addresses the materiality of the concealed bankruptcy risk to customers’

assets. Defendants argue Plaintiffs’ claims premised upon the Bankruptcy Risk Statements fail

because Coinbase was not at risk of bankruptcy. (ECF No. 78-1 at 16–19; ECF No. 80 at 3–5.)

Plaintiffs counter that their “claim is not that Coinbase failed to disclose an imminent risk of

bankruptcy. Rather, Coinbase and the Executive Defendants failed to disclose that, in the event of

a bankruptcy—a common experience among crypto peers—Coinbase’s customers were at risk of

losing their assets.” (ECF No. 79 at 17.) Plaintiffs’ framing of this issue is persuasive. To the extent

Defendants assert that the risks associated with a bankruptcy are not material, Defendants’ position

is contradicted by the Company’s admissions in the May 10, 2022 Form 10-Q report. In this SEC

filing, the Company disclosed the relevant asset safety risks and conceded that this disclosure “may

result in customers finding our custodial services more risky and less attractive and any failure to

increase our customer base, discontinuation or reduction in use of our platform and products by

existing customers as a result could adversely impact our business, operating results, and financial

condition.” (ECF No. 68 ¶ 231.) In this admission, the Company effectively acknowledged the

“substantial likelihood” that the omission of the bankruptcy risk was material to investors. NAHC,

306 F.3d at 1330. Further, the materiality of this information was evidenced by the disclosure’s

significant impact on the market. See In re Able Labs. Sec. Litig., Civ. A. No. 05-2681, 2008 WL

1967509, at *15 (D.N.J. Mar. 24, 2008) (“[T]he significant decrease in stock price immediately

following the disclosure of the adverse information satisfies the Third Circuit’s standard for

pleading materiality.”). Based on the foregoing, the Court finds the Bankruptcy Statements are

material.

Plaintiffs have also properly alleged that Coinbase and the Executive Defendants had a

duty to disclose the bankruptcy risk to customers’ assets. In the Asset Safety Disclosures, Coinbase

and the Executive Defendants candidly detailed the need to safeguard customers’ assets. (See ECF

No. 68 ¶¶ 96–97, 258–59, 270, 273, 276, 284.) The Company specified only two risks—hacking

and the “loss or destruction of private keys”—in safeguarding customers’ assets. (Id.) Elsewhere,

the Executive Defendants repeatedly emphasized the security that Coinbase offered. (Id. ¶¶ 89,

129.) However, Defendants knew they had not taken steps to protect the Company’s retail

customers’ assets from potential bankruptcy risks. (Id. ¶¶ 14–16, 112–20.) By placing the safety

of customers’ assets “in play,” through the statements described above, Coinbase was “bound to

speak truthfully” and disclose the risks that its retail customers’ assets faced. Shapiro, 964 F.2d at

282; see Industriens Pensionsforsikring A/S v. Becton, Dickinson & Co., 620 F. Supp. 3d 167, 186

(D.N.J. 2022) (“Defendants may not describe ‘a favorable picture’ of a material issue ‘without

including the details that would have presented a complete and less favorable one.’” (quoting SEB

Inv. Mgmt. AB v. Endo Int'l, PLC, 351 F. Supp. 3d 874, 897 (E.D. Pa. 2018))). In noting that

hacking and lost keys were risks to safeguarding customers’ assets, Coinbase and the Executive

Defendants had a duty to provide the complete picture of known risks to customer’ assets.16

Instead, Coinbase and the Executive Defendants concealed their knowledge of the potential

bankruptcy risks to safeguarding customers’ assets.17

Additionally, the Court is guided by Item 303 of SEC Regulation S-K which requires

disclosure of “any known trends or uncertainties that have had or that are reasonably likely to have

a material favorable or unfavorable impact on net sales or revenues or income from continuing

operations.” 17 C.F.R. § 229.303(b)(2)(ii). Defendants correctly note that “Item 303 does not

create an ‘affirmative duty of disclosure’ that, if violated, would ‘automatically give rise to a

material omission under Rule 10b-5.’” (ECF No. 78-1 at 15 n.3 (citing Oran v. Stafford, 226 F.3d

275, 288 (3d Cir. 2000)). Notwithstanding, Coinbase and the Executive Defendants’ failure to

disclose the known uncertainty of the risks that bankruptcy posed to asset safety in violation of

Item 303 rendered the Asset Safety Disclosures materially misleading. See In re Galena

Biopharma, Inc. Sec. Litig., 336 F. Supp. 3d 378, 392 (D.N.J. 2018) (“[A]n omission in the context

of Item 303 can give rise to a Rule 10b-5 claim if the Item 303 omission renders other statements

materially misleading.” (emphasis in original)); cf. Oran, 226 F.3d at 288 (“Because plaintiffs

have failed to plead any actionable misrepresentation or omission under [Rule 10b-5], SK-303

cannot provide a basis for liability.”)

The Court concludes this section by addressing Defendants’ argument that several of the

16 Defendants’ argument, that bankruptcy courts have found that customers’ crypto assets are not

part of a cryptocurrency platform’s estate, is misguided. (See ECF No. 78-1 at 18–19.) The legal

landscape that has played out following the period when the Bankruptcy Risk Statements were

made is not relevant to the Court’s analysis.

17 Armstrong’s admissions following the May 10, 2022 Form 10-Q report are illuminating. (See

ECF No. 68 ¶¶ 121, 232 (conceding that Coinbase: “should have updated our retail terms sooner”

to provide retail customers with “the same protections” as institutional customers; and “didn’t

communicate proactively when this risk disclosure was added”).

Bankruptcy Risk Statements are non-actionable puffery and opinion. (See ECF No. 78-1 at 19–20;

see also ECF No. 80 at 6.) The statements that Defendants argue are puffery and opinion each tout

the trust that customers have in Coinbase due to its ability to safely secure customers’ crypto assets.

(See ECF No. 68 ¶¶ 268, 279, 281–82, 289–90.) “[V]ague and general statements of optimism

‘constitute no more than “puffery” and are understood by reasonable investors as such.’” In re

Advanta Corp. Sec. Litig., 180 F.3d 525, 538 (3d Cir. 1999) (quoting Burlington Coat Factory,

114 F.3d at 1428 n.14)). “A statement is considered puffery only when it is immaterial.”

Enzymotec, 2015 WL 8784065, at *14. An opinion “is misleading if it: (i) was not sincerely

believed when made; (ii) contains an expressly embedded, untrue factual assertion; or (iii)

reasonably implies untrue facts and omits appropriate qualifying language.” City of Warren Police,

70 F.4th at 686.

The Court finds that the subject statements here, to the extent they highlight Coinbase’s

alleged ability to safely store customers’ assets, are actionable as they contain “embedded” falsities

and concern a central part of Coinbase’s business. See id.; see also W. Palm Beach Police Pension

Fund v. DFC Glob. Corp., Civ. A. No. 13-6731, 2015 WL 3755218, at *13 (E.D. Pa. June 16,

2015) (“Far from being a vague statement of intention or optimism, fraudulent comments

regarding . . . a fundamental aspect of [defendant’s] business are of vital importance to investors.”).

However, to the extent the subject statements emphasize customers’ trust in Coinbase, the Court

finds these portions to be non-actionable puffery and opinion. See Advanta Corp., 180 F.3d at 538;

City of Warren Police, 70 F.4th at 686 (“An opinion statement . . . is not necessarily misleading

when an issuer knows, but fails to disclose, some fact cutting the other way.”).

Accordingly, the portion of Defendants’ Motion seeking to dismiss Count I, to the extent

it is premised upon the Bankruptcy Statements that tout customers’ trust in the Company, is

GRANTED, as these assertions constitute puffery and opinion. The remaining portions of

Defendants’ Motion to Dismiss Count I for failure to properly allege that the Bankruptcy Risk

Statement are actionable, material misrepresentations and omissions are DENIED.

ii. The Proprietary Trading Statements

The theory of recovery generally alleged in the Proprietary Trading Statements is that

Defendants materially misrepresented and/or omitted the fact that they were engaged in proprietary

trading. It is undisputed that Plaintiffs’ allegations as to the existence of Coinbase’s proprietary

trading venture explicitly rely upon the September 22, 2022 WSJ Article, see Burlington Coat

Factory, 114 F.3d at 1426, which describes its sources with phrases such as “people close to the

matter” and “people at the company.” (ECF No. 78-4 at 1.)

To satisfy the heightened pleading standard in a securities-fraud case, “media sources must

be sufficiently detailed to indicate [] their reliability and be based on an independent investigative

effort.” In re Mylan N.V. Sec. Litig., Civ. A. No. 20-955, 2023 WL 3539371, at *6 (W.D. Pa. May

18, 2023) (alteration in original) (quoting In re Loewen Grp. Inc. Sec. Litig., Civ. A. No. 98-6740,

2004 WL 1853137, at *6 (E.D. Pa. Aug. 18, 2004)); see In re Optionable Sec. Litig., 577 F. Supp.

2d 681, 690 (S.D.N.Y. 2008) (“[N]ewspaper articles should be credited only to the extent that

other factual allegations would be—if they are sufficiently particular and detailed to indicate their

reliability. Conclusory allegations of wrongdoing are no more sufficient if they come from a

newspaper article than from plaintiff's counsel.” (citation and internal quotation marks omitted)).

Generally, when considering confidential witness allegations, it is proper to “evaluat[e] the ‘detail

provided by the confidential sources, the sources’ basis of knowledge, the reliability of the sources,

the corroborative nature of other facts alleged, including from other sources, the coherence and

plausibility of the allegations, and similar indicia.’” Avaya, 564 F.3d at 263 (quoting Cal. Pub.

Emps.’ Ret. Sys. v. Chubb Corp., 394 F.3d 126, 147 (3d Cir. 2004)).

Although the WSJ Article provides alleged details as to the background of the formation

of Coinbase’s proprietary trading unit and a specific trade that was executed (ECF No. 68 ¶¶ 144,

147; ECF No. 78-4 at 1–3), the Court finds that the WSJ Article, and by extension, the dependent

allegations contained in the SAC do not satisfy the heightened pleading standard. In Mylan N.V.,

the district court found that allegations reliant upon both an anonymously sourced book and

Bloomberg articles met the pleading standard because: the authors’ reporting was detailed and

derived from comprehensive “independent investigative efforts”; the “unnamed witnesses [were]

described with enough particularity to give the Court confidence that the information they provided

was reliable”; and “most of the allegations from the [operative] complaint that borrow from the

[book] relate to reporting that could be plausibly corroborated by a review of documents examined

by [the book’s author] and the authors of the Bloomberg articles.” 2023 WL 3539371, at *8.

Conversely, the WSJ Article here does not provide corroborative sources, sufficient detail about

the confidential sources, or any indication that it is based on independent investigative efforts. In

fact, the WSJ Article does not provide any additional information, such as the sources’ job titles

or the bases of the sources’ knowledge.

Courts have rejected similar claims based on unsubstantiated, anonymous sources. See,

e.g., In re Vale S.A. Sec. Litig., Civ. A. No. 15-cv-9539, 2017 WL 1102666, at *27 (S.D.N.Y. Mar.

23, 2017) (dismissing securities fraud claims that “relie[d] on ‘unattributed’ statements in the

[WSJ] . . . for failure to satisfy the Fed. R. Civ. P. 9(b) pleading standard” because the newspaper

article relied upon an “unidentified” employee as its source and neither the article nor the

complaint provided further information about the source); see also Chan v. New Oriental Educ. &

Tech. Grp. Inc., Civ. A. No. 16-9279, 2019 WL 2865452, at *7 (D.N.J. July 3, 2019) (finding the

subject “article [did] not meet the heightened particularity required of claims under Section 10(b)

and Rule 10b-5” as the article was “devoid of [relevant] information,” and did not provide “the

who, what, when, where, and how”); cf. Loewen Grp., 2004 WL 1853137, at *6 (applying the

heightened pleading standard associated with claims under the PSLRA and declining to consider

allegations from an unnamed source where plaintiffs did not provide “sufficient information about

the source,” as Plaintiffs did “not say for whom the source worked or in what capacity”).

Therefore, the Court finds Plaintiffs have not adequately pled that the Proprietary Trading

Statements are material misstatements and omissions because the WSJ Article does not provide

the sufficient level of detail required by the heightened pleading standard and does not indicate an

independent investigative effort. Accordingly, the portion of Defendants’ Motion to Dismiss Count

I, to the extent it is premised upon the Proprietary Trading Statements, is GRANTED.18 Because

the Court finds Plaintiffs have not adequately alleged material misrepresentations and omissions

in the Proprietary Trading Statements, the Court will not address the remaining issues and

arguments related to the Proprietary Trading Statements and Count I. See Chan, 2019 WL

2865452, at *7 n.6 (“In view of the amended complaint's failure to adequately plead material

misrepresentations or scienter, the Court need not reach whether loss causation is sufficiently

pleaded.”); Vale S.A., 2017 W.L. 1102666, at *27 (“Because the speaker of the statements quoted

in the Wall Street Journal is not identified, these allegations must be dismissed, before even

18 The Court notes Defendants identified another basis that warrants dismissal of Plaintiffs’ claims

premised upon a subset of the Proprietary Trading Statements. Plaintiffs did not raise allegations

as to when the plans for Coinbase’s proprietary trading venture were supposedly made. Therefore,

Plaintiffs did not adequately allege the point at which the Proprietary Trading Statements actually

were false. See In re Lululemon Sec. Litig., 14 F. Supp. 3d 553, 571 (S.D.N.Y. 2014), aff’d, 604

F. App’x 62 (2d Cir. 2015) (“[W]ithout contemporaneous falsity, there can be no fraud.” (citation

omitted).) As Defendants state, “a test trade made at some point in 2022 cannot show

contemporaneous falsity for any statements that came before it including all of the 2021

statements.” (ECF No. 78-1 at 24.)

arriving at Defendants’ loss causation arguments on this point.”).

iii. The Regulatory Statements

Next, the Court addresses the parties’ arguments related to the Regulatory Statements.

Defendants’ primary argument is that they did not have a duty to disclose their alleged

understanding of the SEC’s actions. (ECF No. 78-1 at 26–29.) In this category of the Challenged

Statements, Plaintiffs allege Coinbase and the Executive Defendants misrepresented and omitted

that Coinbase listed crypto assets that were likely securities from 2019 through 2021 thereby

concealing the likelihood of a SEC enforcement action. (ECF No. 68 ¶¶ 25, 178, 182–83, 342,

345, 357, 379.) Plaintiffs allege Defendants told investors in 2022 that “Coinbase does not list

securities. End of story.” (Id. ¶ 343; see also id. ¶ 348 (“[T]he company does not list securities.”).

Grewal, speaking on behalf of Coinbase, assured investors that “Coinbase has a rigorous process

to analyze and review each digital asset before making it available on our exchange—a process

that the SEC itself has reviewed.” (Id. ¶ 343.) Previously, Defendants had stated Coinbase only

listed assets “for which we determine there are reasonably strong arguments to conclude that the

crypto asset is not a security.” (Id. ¶ 188.) Defendants further represented: “[w]e are confident that

our rigorous diligence process . . . keeps securities off our platform.” (Id. ¶ 346.)

The Court finds Plaintiffs have adequately alleged that Defendants misleadingly described

a favorable picture of the improbability that the SEC would file an enforcement action by

repeatedly emphasizing that the crypto assets they listed were not securities. Although “disclosure

is not a rite of confession, and companies do not have a duty to disclose uncharged, unadjudicated

wrongdoing,” City of Pontiac Policemen’s and Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 184

(2d Cir. 2014) (citations and internal quotation mark omitted), Defendants still had an obligation

to “include the details that would have presented a complete and less favorable one.” Becton, 620

F. Supp. 3d at 186; see also Williams, 869 F.3d at 241 (“Once a company has chosen to speak on

an issue—even an issue it had no independent obligation to address—it cannot omit material facts

related to that issue so as to make its disclosure misleading.”). The Regulatory Statements are

misleading as Plaintiffs allege Coinbase decided to list crypto assets from late 2019 through 2021,

that its own review process determined had “high ‘risk’ scores,” and thus were likely to be

securities.” (ECF No. 68 ¶¶ 25, 182–83, 379; see also id. ¶ 182.) Further, a subset of the statements

were misleading in that Defendants concealed that the SEC had indicated to Defendants by mid-

2022 that most crypto assets on Coinbase’s platform were likely securities. (Id. ¶¶ 151, 378.)

Therefore, the Court finds that Plaintiffs have adequately pled Defendants had a duty to disclose

material facts related to the likelihood that the crypto assets listed were securities and, as a result,

the likelihood that the SEC would file an enforcement action. Cf. Becton, 620 F. Supp. 3d at 187

(“The fact that the FDA had not issued a formal warning letter . . . does not mean that the

[defendant] was free to issue misleading statements that failed to recognize the serious, immediate,

and known risks posed by a near-certain enforcement action.”); Frater v. Hemispherx Biopharma,

Inc., 996 F. Supp. 2d 335, 350 (E.D. Pa. 2014) (“[W]hen the FDA tells a company about problems

with a product, and the company nonetheless continues to make confident predictions about a

product, courts have inferred scienter and falsity.” (quoting In re MannKind Sec. Actions, 835 F.

Supp. 2d 797, 811 (C.D. Cal. 2011)).19

19 Additionally, the Court is not swayed by Defendants’ argument that the Regulatory Statements

did not misleadingly minimize the potential of an SEC investigation. Although Defendants warned

of “regulatory uncertainty” (ECF No. 68 ¶ 205), generic warnings of a risk do “not suffice when

undisclosed facts on the ground would substantially affect a reasonable investor’s calculations of

probability.” Meyer v. Jinkosolar Holdings Co., 761 F.3d 245, 251 (2d Cir. 2014). As to

Defendants’ contention that a portion of the Regulatory Statements—statements promoting

Coinbase’s review process and providing that the Company does not list securities––are

nonactionable opinions, the Court disagrees and finds these statements are actionable as they did

not “fairly align[] with the information in [their] possession.” Omnicare, Inc. v. Laborers Dist.

To the extent Defendants claim they did not have a duty to “speculate” as to the SEC’s

actions (ECF No. 78 at 26–29), the Court finds this argument is misplaced as Plaintiffs’ claim is

better qualified as seeking recourse for the misleading nature of the Regulatory Statements in

concealing “that the Company had listed assets that its own internal process had flagged as likely

securities, and that the SEC had told it that most assets it listed were likely securities, thus

increasing the risk that the SEC would bring an enforcement action.” (ECF No. 79 at 28 n.16.)

Further, this argument is contradicted by Plaintiffs’ allegations that Defendants knew Coinbase

faced “an imminent enforcement action,” yet continued to minimize the risks of a regulatory

action. (ECF No. 68 ¶¶ 209–15.)

Accordingly, the portion of Defendants’ Motion to Dismiss Count I, to the extent it is

premised upon the Regulatory Statements, is DENIED.

2. Plaintiffs Have Sufficiently Alleged Scienter

Defendants also argue the SAC does not sufficiently allege a strong inference of scienter.

(ECF No. 78-1 at 32–40.) Specifically, Defendants assert Plaintiffs fail to allege: (i) Defendants’

motive; (ii) conscious misbehavior or recklessness; and (iii) circumstantial evidence of fraud. (Id.)

In opposition, Plaintiffs counter the SAC adequately alleges Defendants’ scienter because: (i)

“Defendants knew, or at the very least were reckless to disregard, information indicating that

Coinbase’s customers were at risk of asset loss in the event of bankruptcy”; (ii) Defendants knew

Coinbase listed crypto assets that were likely securities; and (iii) the SAC provides particularized

allegations that Defendants were motivated to artificially inflate Coinbase’s stock. (ECF No. 79 at

30–41.) In reply, Defendants reiterate Plaintiffs did not adequately plead scienter because Plaintiffs

Council Constr. Indus. Pension Fund, 575 U.S. 175, 189 (2015); see also City of Warren Police,

70 F.4th at 686; W. Palm Beach Police, 2015 WL 3755218, at *13.

fail to allege Defendants’ motive to commit fraud, and conscious misbehavior or recklessness.

(ECF No. 80 at 11–15.) As to motive, Defendants assert, “no facts suggest that the timing of the

10b5-1 plans was linked to any attempt to increase Coinbase’s stock price ‘immediately before the

scheduled sales,’ . . . to the contrary, the trading plans caused Defendants to sell at some of the

lowest prices of the putative class period.” (Id. at 12 (quoting Emps.’ Ret. Sys. of Gov’t of the V.I.

v. Blanford, 794 F.3d 297, 309 (2d Cir. 2015).)20

To satisfy the particularity requirement of the PSLRA, the plaintiff must plead “facts giving

rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C.

§ 78u-4(b)(2)(A). Scienter, “the intent to deceive, manipulate, or defraud either knowingly or

recklessly,” is the required state of mind. PAMCAH-UA Loc. 675 Pension Fund v. BT Grp. PLC,

No. 20-2106, 2021 WL 3415060, at *1 (3d Cir. Aug. 5, 2021) (citations omitted); see also Tellabs,

551 U.S. at 319 (noting scienter is “a mental state embracing intent to deceive, manipulate, or

defraud (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976)). “The inquiry . . .

is whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not

whether any individual allegation, scrutinized in isolation, meets that standard.” Id. at 323

20 In their reply brief, Defendants raise arguments that Plaintiffs’ allegations are improper group

pleading as “Plaintiffs must allege with particularity on a defendant-by-defendant and

statement-by-statement basis that the challenged statements were made with deliberate

recklessness,” and “Plaintiffs cannot allege ‘corporate scienter.’” (Id. at 11–12 (citing Winer Fam.

Tr. v. Queen, 503 F.3d 319, 337 (3d Cir. 2007); In re Great Atl. & P. Tea Co., Inc. Sec. Litig., 103

F. App’x 465, 469 (3d Cir. 2004); In re Hertz Glob. Holdings, Inc. Secs. Litig., Civ. A. No. 13-

7050, 2017 WL 1536223, at *23 (D.N.J. Apr. 27, 2017), aff’d sub nom., In re Hertz Glob.

Holdings, 905 F.3d 106 (3d Cir. 2018)). The Court did not consider these arguments because

Defendants improperly raised them for the first time in their reply brief. See Skretvedt v. E.I.

DuPont De Nemours, 372 F.3d 193, 202–03 (3d Cir. 2004) (“[A]n issue is waived unless a party

raises it in its opening brief, and for those purposes a passing reference to an issue will not suffice

to bring that issue before this court.”); see also Dana Transp. v. Ableco Fin., Civ. A. No. 04-2781,

2005 WL 2000152, at *6 (D.N.J. Aug. 17, 2005) (holding that it is axiomatic in federal practice

that arguments raised for the first time in a reply brief should be disregarded). Defendants’

arguments can be re-raised, if applicable, in a motion to dismiss Plaintiffs’ amended pleading.

(emphasis in original). To survive a motion to dismiss, plaintiffs must plead facts that allow “a

reasonable person [to] deem the inference of scienter cogent and at least as compelling as any

plausible opposing inference one could draw from the facts alleged.” Id. at 324. “The inference

. . . need not be irrefutable, i.e., of the smoking gun genre, or even the most plausible of competing

inferences.” Id.

“In the Third Circuit, ‘[s]cienter may be established by setting forth facts that constitute

circumstantial evidence of either recklessness or conscious behavior and supported by evidence of

motive and opportunity to commit fraud.’” Roofer’s Pension Fund v. Papa, Civ. A. No. 16-2805,

2018 WL 3601229, at *16 (D.N.J. 2018) (quoting In re Anadigics, Inc., Sec. Litig., Civ. A. No.

08-5572, 2011 WL 4594845, at *32 (D.NJ. Sept 30, 2011), aff’d, 484 F. App’x 742 (3d Cir. 2012)).

“Demonstrating that a defendant had a motive, such as personal financial gain, to commit a

securities fraud violation is a ‘relevant consideration’ that ‘may weigh heavily in favor of a scienter

inference[.]’” Hertz Glob. Holdings, 905 F.3d at 119 (quoting Tellabs, 551 U.S. at 325); see also

Rahman, 736 F.3d 237, 246 (3d Cir. 2013) (“Though it is not necessary to plead motive to establish

that a defendant acted with scienter, its presence can be persuasive when concluding a holistic

review of the evidence.”). However, “motive and opportunity” do not “serve as an independent

route to [establishing] scienter.” Avaya, 564 F.3d at 277. “[A] plaintiff properly pleads scienter by

alleging facts that ‘constitute circumstantial evidence of either reckless or conscious behavior.’”

Gold v. Ford Motor Co., 577 F. App’x 120, 123 (3d Cir. 2014) (quoting Avaya, 564 F.3d at

276–77). A plaintiff relying upon circumstantial evidence to support a strong inference of scienter

“must sufficiently plead ‘defendants’ knowledge of facts or access to information contradicting

their public statements . . . [i.e., that] defendants knew or, more importantly, should have known

that they were misrepresenting material facts related to the corporation.” Roofer’s Pension Fund,

2018 WL 3601229, at *18 (quoting In re Campbell Soup Co. Sec. Litig., 145 F. Supp. 2d 574, 599

(D.N.J. 2001)).

1. Plaintiffs Have Adequately Alleged Defendants Made the Bankruptcy

Risk Statements with Scienter

Plaintiffs have adequately set forth allegations that constitute circumstantial evidence by

alleging Defendants’ reckless and conscious actions in making the Bankruptcy Risk Statements.

Plaintiffs allege the following: (i) Defendants submitted the SEC Comment Letter demonstrating

Defendants’ understanding that the commingling of customers’ assets could lead to adverse

consequences in the event of a bankruptcy (ECF No. 68 ¶¶ 13, 105–09); (ii) Defendants took

affirmative steps to mitigate the potential bankruptcy risks to institutional customers’ assets (id.

¶¶ 14–16, 112–20); (iii) Armstrong eventually conceded that Defendants “should have updated

our retail terms sooner” to provide retail customers with “the same protections” as institutional

customers (id. ¶¶ 121, 232). Based on these allegations, the Court finds Plaintiffs have alleged

reckless and/or conscious behavior that supports a strong inference of scienter as plaintiffs “have

specifically alleged defendants’ knowledge of facts or access to information contradicting their

public statements.” Campbell Soup, 145 F. Supp. 2d at 699 (quoting Novak v. Kasaks, 216 F.3d

300, 308 (2d Cir. 2000)). Further, Plaintiffs have established a strong inference of scienter by

alleging “defendants knew or, more importantly, should have known that they were

misrepresenting material facts related to the corporation.” Id. (quoting Novak, 216 F.3d at 308).

Additionally, Plaintiffs’ allegations—that retail fees make up a substantial portion of

Coinbase’s revenue and that Defendants acknowledged asset security was vital to their efforts in

retaining retail clients—are further persuasive here. See Avaya, 564 F.3d at 268 (acknowledging

that “since competition, pricing policies, and pricing concessions are ‘core matters’ of central

importance to [defendant] and its principal executives, a ‘core operations inference’ supports

scienter”); see also In re Allergan Generic Drug Pricing Sec. Litig., Civ. A. No. 16-9449, 2019

WL 3562134, at *12 (D.N.J. Aug. 6, 2019) (finding scienter was supported when challenged

statements were on a subject that constituted a “substantial portion” of the defendant’s revenue);

In re Cell Pathways, Inc., Sec. Litig., Civ. A. No. 99-725, 2000 WL 805221, at *7 (E.D. Pa. June

20, 2000) (finding “where the alleged fraud relates to the core business of the company, knowledge

of the fraud may be imputed to the individual defendants” (citation omitted)).

2. Plaintiffs Have Adequately Alleged the Regulatory Statements Were

Made with Scienter

Relevant to the Regulatory Statements, Plaintiffs allege: Coinbase co-founded the CRC

(ECF No. 68 ¶¶ 179–81); Defendants knew that Coinbase listed crypto assets which were likely

securities (id. ¶¶ 25, 182–83, 379); Defendants knowingly downplayed the likelihood that the SEC

would bring an enforcement action (id. ¶¶ 178, 342, 345, 357); the SEC told Defendants that “we

think everything other than Bitcoin is a security” (id. ¶¶ 151, 378); Armstrong conceded

Defendants were aware of the SEC’s position by mid-2022 (id. ¶¶ 209, 378); despite Defendants

knowledge of “an imminent enforcement action,” they continued to minimize the risks of a

regulatory action (id. ¶¶ 209–215). Accordingly, the Court also finds Plaintiffs have adequately

alleged Defendants actions support a strong inference of scienter as plaintiffs “have specifically

alleged defendants’ knowledge of facts or access to information contradicting their public

statements.” Campbell Soup, 145 F. Supp. 2d at 699; cf. Frater, 996 F. Supp. 2d at 350 (“When

the FDA tells a company about problems with a product, and the company nonetheless continues

to make confident predictions about a product, courts have inferred scienter and falsity.”).

3. Plaintiffs’ Allegations that Defendants Were Financially Motivated to

Artificially Inflate Coinbase’s Stock Further Support a Strong

Inference of Scienter

The Court also finds Plaintiffs’ allegations as to Armstrong’s financial motivations further

support a finding that Plaintiffs have sufficiently alleged the Bankruptcy Risk and Regulatory

Statements were made with scienter. (See, e.g., ECF No. 68 ¶¶ 6, 81–82 (alleging Armstrong was

highly motivated to complete a successful Direct Listing as doing so would entitle him to a

compensation package valued at over $3.7 billion) 21; id. ¶¶ 81–84, 386 (noting Armstrong was

also entitled to “tranches” of stock options if the Company maintained stock prices following the

Direct Listing).22 Additionally, stock sales that are “unusual in scope or timing . . . may support

an inference of scienter.” Advanta Corp., 180 F.3d at 540 (citing Burlington Coat Factory, 114

F.3d at 1424; Shaw, 82 F.3d at 1224). Here, in the first two days that Coinbase’s stock was listed,

the Executive Defendants sold over 1.6 million shares netting gross proceeds over $600 million.

(ECF No. 68 ¶ 125.) During the Class Period, the Executive Defendants sold over 2.8 million

shares of Coinbase netting gross proceeds of nearly one billion dollars. (Id.)

Based on the foregoing, the Court finds Plaintiffs’ additional evidence of scienter

contributes to a finding of scienter. While these individual allegations may not give rise to an

inference of scienter on their own, “all of the facts alleged, taken collectively, give rise to a strong

inference of scienter.” Tellabs, Inc., 551 U.S. at 323 (emphasis in original). Accordingly, the Court

finds Plaintiffs have adequately alleged scienter. Defendants’ Motion to Dismiss Count I for failure

to allege scienter is DENIED.

21 Plaintiffs also allege Armstrong’s base salary was just $1 million (id. ¶ 84). Cf. In re Suprema

Specialties, Inc. Sec. Litig., 438 F.3d 256, 277 (3d Cir. 2006) (noting that a factor relevant to

inferring scienter is “whether the profits were substantial relative to the seller’s ordinary

compensation” (citing Burlington Coat Factory, 114 F.3d at 1423)).

22 See No. 84 Emp.-Teamster Joint Council Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d

920, 944 (9th Cir. 2003) (finding particularized allegations of scienter as executives were

“motivated to inflate [the company]’s financial results and stock prices because their eligibility for

stock options and executive bonuses were based principally on the company’s financial

performance”).

3. Plaintiffs Have Properly Alleged Loss Causation

Defendants assert the SAC fails to allege loss causation “because Plaintiffs do not allege

any corrective disclosure of a previously concealed truth that caused Coinbase’s stock price to

decline.” (ECF No. 78-1 at 40 (citation and internal quotation marks omitted); see also ECF No.

80 at 16.) In opposition, Plaintiffs counter the SAC adequately alleges loss causation. (ECF No.

79 at 41–44.)

“Under the PSLRA, a plaintiff asserting a claim under Section 10(b) bears the burden of

proving ‘loss causation,’ i.e., ‘that the act or omission of the defendant . . . caused the loss for

which the plaintiff seeks to recover damages.’” Takata v. Riot Blockchain, Inc., Civ. A. No.

18-02293, 2020 WL 2079375, at *17 (D.N.J. Apr. 30, 2020) (quoting 15 U.S.C. § 78u-4(b)(4)).

“Allegations of loss causation are not subject to the heightened pleading requirements of Rule 9(b)

and the PSLRA: all that is required is that plaintiff provide ‘some indication of the loss and the

causal connection that the plaintiff has in mind,’ consistent with Rule 8(a).” Dudley v. Haub, Civ.

A. No. 11-05196, 2013 WL 1845519, at *18 (D.N.J. Apr. 30, 2013) (quoting Dura Pharms., Inc.

v. Broudo, 544 U.S. 336, 347 (2005)). The Third Circuit applies a “practical approach [to loss

causation], in effect applying general causation principles.” McCabe v. Ernst & Young, LLP, 494

F.3d 418, 426 (3d Cir. 2007) (quoting EP Medsystems, Inc. v. EchoCath, Inc., 235 F.3d 865, 884

(3d Cir. 2000)). Thus, “to show that a misrepresentation or omission proximately caused an

economic loss,” a plaintiff need only to allege “the misrepresentation [or omission] touches upon

the reasons for the investment’s decline in value.” Id. at 428 (quoting Huddleston v. Herman &

MacLean, 640 F.2d 534, 549 (5th Cir. 1981), aff’d in part and rev’d in part on other grounds, 459

U.S. 375 (1983)).

Importantly, “[t]he issue of loss causation is usually not resolved on a motion to dismiss.”

Dudley, 2013 WL 1845519, at *18 (citing EP Medsystems, 235 F.3d at 884 (“Whether the plaintiff

has proven [loss] causation is usually reserved for the trier of fact.”)); see Gross v. GFI Grp., Inc.,

162 F. Supp. 3d 263, 269 (S.D.N.Y. 2016) (“[Plaintiff]’s burden to plead loss causation is ‘not a

heavy one,’ and when it is unclear whether the plaintiff's losses were caused by the fraud or some

other intervening event, ‘the chain of causation is . . . not to be decided on a Rule 12(b)(6) motion

to dismiss.’” (quoting Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160,

187 (2d Cir. 2015))).

Here, Plaintiffs have sufficiently set forth a causal link between the Bankruptcy Risk

Statements and their alleged losses by alleging Coinbase’s May 10, 2022 Form 10-Q report, which

belatedly disclosed the previously concealed asset safety risks posed by a bankruptcy, caused

Coinbase’s stock price to drop more than 26%.23 (ECF No. 68 ¶¶ 231, 233.) Similarly, Plaintiffs

have plausibly alleged a causal link between the Regulatory Statements and their alleged losses by

alleging multiple stock price drops were connected to the misleading nature of the Regulatory

Statements. (See id. ¶¶ 197, 200–01, 219, 238, 247–49, 253–55.)

Further, as Plaintiffs need only “provide some indication of the loss and the causal

connection,” Dura Pharms., 544 U.S. at 347, the Court finds Plaintiffs have sufficiently alleged a

causal link by generally alleging the Bankruptcy Risk Statements and Regulatory Trading

Statements artificially inflated prices and by specifically alleging a causal link between the reveals

of the concealed, material information and the Company’s stock price drops. See Jones v. Intelli-

23 The Court is not persuaded by Defendants’ argument that the risks to customers’ assets

associated with a bankruptcy had “already been disclosed” prior to May 10, 2022. (ECF No. 78-1

at 40–41; see also ECF No. 80 at 16.) The Court agrees with Plaintiff’s framing of this issue and

finds that dismissal is not warranted on this basis. (See ECF No. 79 at 42 n.25 (quoting Roofer’s

Pension Fund, 2018 WL 3601229, at *9 (“[T]he truth on the market defense is intensely

fact-specific and is rarely an appropriate basis for dismissing a § 10(b) complaint.”).

Check, 274 F. Supp. 2d 615, 635–36 (D.N.J. 2003) (holding plaintiffs adequately pled causation

where plaintiffs relied on generalized allegations); see also EP Medsystems, 235 F.3d at 885

(“Although . . . the allegation that it ‘sustained substantial financial losses as a direct result of the

aforementioned misrepresentations and omissions on the part of [defendant company]’ could have

more specifically connected the misrepresentation to the alleged loss, i.e., investment in a company

with little prospects, when we draw all reasonable inferences in plaintiff’s favor, we conclude that

[plaintiff] has adequately alleged loss causation.”); In re iAnthus Cap. Holdings, Inc. Sec. Litig.,

Civ. A. No. 20-3135, 2022 WL 4539119, at *20 (S.D.N.Y. Sept. 28, 2022) (finding allegations

sufficiently pled loss causation because the allegations were “more than simply pleading inflated

prices,” instead the allegations “put defendants on notice of the loss to the class and the causal

connection lead plaintiff has in mind”). Accordingly, Defendants’ Motion to Dismiss Count I of

the SAC for failure to adequately allege loss causation is DENIED.

To summarize the holdings from Section III.A., Defendants’ Motion to Dismiss Count I is

GRANTED IN PART and DENIED IN PART. Defendants’ Motion to Dismiss Count I, to the

extent it is premised upon the Proprietary Trading Statements and the Bankruptcy Statements that

tout customers’ trust in the Company, is GRANTED. The remaining portions of Defendants’

Motion to Dismiss Count I are DENIED.

B. Defendants’ Motion to Dismiss Count II of the SAC (Violations of Section

20(a) of the Exchange Act Against the Executive Defendants)

Defendants assert Plaintiffs’ claims for control person liability under Sections 20(a) of the

Exchange Act should be dismissed because Plaintiffs fail to plead an underlying violation of

Section 10(b). (ECF No. 78-1 at 48; ECF No. 80 at 18.) To state a claim under Section 20(a) of

the Exchange Act, the plaintiff must allege: “(1) an underlying violation by the company; and (2)

circumstances establishing defendant’s control over the company’s actions.” Intelli-Check, Inc.,

274 F. Supp. 2d at 645. Liability under Section 20(a) “is derivative of an underlying violation of

Section 10(b) by the controlled person.” Rahman, 736 F.3d at 247 (quoting Avaya, 564 F.3d at

252). “Thus, for a controlling person to be liable, the person over whom control was exercised

must have committed a primary violation of the securities laws.” In re Intelligroup Sec. Litig., 527

F. Supp. 2d 262, 280 (D.N.J. 2007) (citations omitted). Here, the Court has held that Plaintiffs

have sufficiently pled underlying violations of Section 10(b) against the Executive Defendants in

Count I of the SAC premised upon the Bankruptcy Risk Statements24 and the Regulatory

Statements. Accordingly, Defendants’ Motion to Dismiss Count II of the SAC is DENIED.

C. Defendants’ Motion to Dismiss Count III (Violations of Section 11 of the

Securities Act Against the Securities Act Defendants)

Defendants assert Plaintiffs’ claims under Section 11 of the Securities Act should be

dismissed for lack of standing because Plaintiffs have not adequately pled that they purchased

Coinbase shares traceable to the Company’s Registration Statement. (ECF No. 78-1 at 43–45; ECF

No. 80 at 16–17.) Additionally, Defendants argue Plaintiffs fail to adequately plead the required

elements of a Section 11 claim. (ECF No. 78-1 at 46–47; ECF No. 80 at 17–18.) In opposition,

Plaintiffs argue they have adequately pled claims under Section 11 of the Securities Act because

they have pled standing and the required elements. (ECF No. 79 at 44–47.) As to standing,

Plaintiffs submit they have plausibly alleged that they purchased Coinbase stock traceable to the

misleading Offering Materials. (Id. at 44–46.)

24 As held above, supra Section III.A.1.i., the Bankruptcy Statements that touted customers’ trust

in the Company are not actionable misstatements as these assertions constitute puffery and

opinion.

1. Section 11 Standing25

Under Section 11 of the Securities Act, standing is available to purchasers “who acquired

securities issued ‘pursuant to’ or ‘traceable to’ the specific offering documents that are alleged to

be false or misleading.” De Vito v. Liquid Holdings Grp., Inc., Civ. A. No. 15-6969, 2018 WL

6891832, at *15 (quoting Suprema Specialties, 438 F.3d at 274 n.7); see also Slack Techs., LLC v.

Pirani, 598 U.S. 759, 770 (2023) (holding Section 11 requires “a plaintiff to plead and prove that

he purchased shares traceable to the allegedly defective registration statement”).26 Notably, “[t]he

pleading requirement for Section 11 standing is satisfied by general allegations that plaintiff

purchased pursuant to or traceable to [a] false registration statement.” Alta Partners, LLC v. Forge

Glob. Holdings, Inc., Civ. A. No. 23-2647, 2024 WL 1116682, at *7 (S.D.N.Y. Mar. 13, 2024)

(quoting In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 326, 373 (S.D.N.Y. 2011); citing City

of Omaha Police and Fire Ret. Sys. v. Evoqua Water Techs. Corp., 450 F. Supp. 3d 379, 403

(S.D.N.Y. 2020) (“[Plaintiff] alleges that it purchased [defendant’s] stock pursuant or traceable to

the offerings. . . . This is enough to confer standing at this stage to assert a [Section] 11 claim.”).

In the SAC, Plaintiffs allege they “acquired Coinbase common stock pursuant and/or

25 The parties frame their arguments as related to the issue of Plaintiffs’ “standing” under Section

11 and Section 12 of the Securities Act, but the arguments may be “more properly characterized

as arguments about the scope of the cause of action because they do not, as standing does, go to

this Court’s subject matter jurisdiction.” Lozada v. TaskUs, Inc., Civ. A. No. 22-1479, 2024 WL

68571, at *15 n.19 (S.D.N.Y. Jan. 5, 2024) (citing Am. Psychiatric Ass’n v. Anthem Health Plans,

Inc., 821 F.3d 352, 359 (2d Cir. 2016) (“[A] plaintiff must have a cause of action under the

applicable statute. This was formerly called statutory standing.” (internal quotation marks

omitted)). Notwithstanding, the Court will utilize the same terminology the parties used in their

briefing.

26 In Slack, the United States Supreme Court did not specify what allegations would be adequate

to pleading standing. See id.

traceable to the Offering Materials.”27 (Id. ¶ 518.) Additional Plaintiffs28 specifically allege: they

purchased Coinbase stock on April 14, 2021, the first day of Coinbase’s Direct Listing, at prices

near the opening price (id. ¶¶ 41–43); and 88% of shares outstanding were registered pursuant to

the Offering Materials when they purchased the Company’s stock (id.). Lead Plaintiff alleges it

purchased the Company’s stock on November 30, 2021, when 74% of the shares outstanding were

registered pursuant to the Offering Materials. (Id. ¶ 40.)

The Court finds Plaintiffs have plausibly alleged that they purchased shares pursuant and/or

traceable to the Offering Materials. See Alta Partners, 2024 WL 1116682, at *7 (finding sufficient

allegations where plaintiff merely alleged it purchased subject assets that were “issued pursuant to

or traceable to” the registration statement); Lozada, 2024 WL 68571, at *16 n.21 (same); In re

EveryWare Glob., Inc. Sec. Litig., 175 F. Supp. 3d 837, 866 (S.D. Ohio 2016), aff’d sub nom. on

other grounds, IBEW Loc. No. 58 Annuity Fund v. EveryWare Glob., Inc., 849 F.3d 325 (6th Cir.

2017) (finding Plaintiffs had standing where plaintiffs alleged they purchased shares on the first

day of the defendant company’s secondary offering at prices near the opening price, “and that

1,7500,000 [sic] shares were sold in the [secondary offering] in comparison to the pre-existing

public float of 2,023,000 shares”); see also In re Salomon Analyst Level 3 Litig., 350 F. Supp. 2d

477, 496 (S.D.N.Y. 2004) (collecting cases stating the rule that “at least one named plaintiff must

have standing to pursue each claim alleged” for a class action suit); but see Krim v. pcOrder.com,

Inc., 402 F.3d 489, 492 n.6, 494 (5th Cir. 2005) (disagreeing with appellants’ argument that

27 To the extent this is an issue of standing, “the court must accept as true all material allegations

set forth in plaintiffs’ complaint and must construe those facts in favor of the plaintiffs.” Mariana

v. Fisher, 338 F.3d 189, 205 (3d Cir. 2003) (citation omitted).

28 See Hevesi v. Citigroup Inc., 366 F.3d 70, 83 (2d Cir. 2004) (“[T]he PSLRA does not in any

way prohibit the addition of named plaintiffs to aid the lead plaintiff in representing a class.”).

standing under Section 11 can be established “by proffering nothing more than statistics indicating

a high mathematical probability, based on the number of shares purchased by each individual and

the number of [public offering] shares in the market, that at least some of their shares were issued

pursuant to the challenged registration statement”). Accordingly, Defendants’ Motion to Dismiss

Count III for lack of standing is DENIED.

2. Plaintiffs Have Sufficiently Alleged Section 11 Claims

Under Section 11 of the Securities Act, an individual that has acquired the relevant security

may bring a private action for damages “if [the] registration statement, as of its effective date: (1)

‘contained an untrue statement of material fact’; (2) ‘omitted to state a material fact required to be

stated therein’; or (3) omitted to state a material fact ‘necessary to make the statements therein not

misleading.’” Cal. Pub. Emps.’ Ret. Sys., 394 F.3d at 167 (quoting 15 U.S.C. § 77k(a)). “As the

Supreme Court has explained, Section 11 ‘was designed to assure compliance with the disclosure

provisions of the Act by imposing a stringent standard of liability on the parties who play a direct

role in a registered offering.’” Suprema Specialties, 438 F.3d at 269 (quoting Herman & MacLean

v. Huddleston, 459 U.S. 375, 381–82 (1983) (footnote omitted)). Indeed, “Section 11 is a ‘virtually

absolute liability provision[], which do[es] not require plaintiffs to allege that defendants possessed

any scienter.’” Id. (quoting In re Adams Golf, Inc. Sec. Litig., 381 F.3d 267, 274 n.7 (3d Cir.

2004)).

Defendants argue the Court should apply Rule 9(b)’s heightened pleading standard because

“a core theory of fraud permeate[s] the entire” complaint.29 (ECF No. 78-1 at 46 (quoting Cal.

29 The parties submitted limited arguments on this issue. (See ECF No. 78-1 at 46; ECF No. 79 at

47; ECF No. 79 at 17.) Therefore, the Court attempts to succinctly address this issue. Cf. United

States v. Hoffecker, 530 F.3d 137, 163 (3d Cir. 2008) (“A skeletal ‘argument,’ really nothing more

than an assertion, does not preserve a claim. Especially not when the brief presents a passel of

other arguments, as [defendant]’s did. Judges are not like pigs, hunting for truffles buried in

Pub. Emps.’ Ret. Sys., 394 F.3d at 167).) The Court disagrees. The Third Circuit’s decision in

Suprema Specialties is instructive here. In Suprema Specialties, the Third Circuit applied its prior

decision in Cal. Pub. Emps.’ Ret. Sys and held that the district court erroneously found plaintiffs’

Section 11 and Section 12(a)(2) claims were sounded in fraud. 438 F.3d at 269–74. The lead class

plaintiff in that case “described its suit as arising out of a ‘massive fraud’ at [the defendant

company], stemming in particular from the allegedly material misrepresentations in the

registration statements” that the defendant company filed in connection with a public offering. Id.

at 270. Further, the lead class plaintiff “prefaced its Section 11 and Section 12(a)(2) count with an

explicit disclaimer––‘[t]his claim is not based on and does not sound in fraud’––prior to setting

for the factual allegations that support each claim for relief.” Id. at 271 (alteration in original). The

Third Circuit distinguished Cal. Pub. Emps.’ Ret. Sys. and Shapiro, and held:

We now hold that where, as here, individual defendants are accused

in separate claims of the same complaint of having violated Section

11, Section 12(a)(2), and Section 10(b), the Securities Act claims do

not sound in fraud if ordinary negligence is expressly pled in

connection with those claims. In such a case, the fraud allegations

cannot be said to “contaminate” the Section 11 and Section 12(a)(2)

claims if the allegations are pled separately. We applied Rule 9(b)

to the Section 11 and Section 12(a)(2) claims in Shapiro because

“plaintiffs did not allege ordinary negligence” and we could “see no

way to construct a negligence cause of action.” Shapiro, 964 F.2d at

288. Here, ordinary negligence is alleged in the Section 11 and

Section 12(a)(2) claims, and those claims are pled separately from

the Section 10(b) fraud claims against the same defendants. That is

enough to avoid triggering Rule 9(b). A contrary result would

effectively preclude plaintiffs from filing suit under Section 11 and

Section 12(a)(2) as well as Section 10(b)(5). There is no suggestion

that Congress intended such an incongruous approach.

Id. at 272–73.

briefs.” (alteration in original) (quoting United States v. Dunkel, 927 F.2d 955, 956 (7th Cir.

1991))).

Plaintiffs correctly contend that “the conduct pled for the Securities Act [C]laims is []

similar to the core theory of fraud pled for the Exchange Act [C]laims.” (ECF No. 78-1 at 46 n.15

(citing ECF No. 68).) However, even where “a core theory of fraud permeates,” this aspect alone

is not dispositive. See Suprema Specialties, 438 F.3d at 272–273. Instead, as noted above,

“Securities Act claims do not sound in fraud if ordinary negligence is expressly pled in connection

with those claims.” Id. at 272. In this matter, Plaintiffs do not provide extensive ordinary

negligence allegations, but they do expressly plead ordinary negligence by alleging the Securities

Act Defendants did not exercise reasonable care. (See ECF No. 68 ¶ 440 (“The Securities Act

Claims against the Securities Act Defendants are also premised upon the Securities Act

Defendants’ negligent failure to conduct a reasonable due diligence investigation into the accuracy

and completeness of the representations contained in the Offering Materials. Had the Securities

Act Defendants not acted negligently, and had they conducted reasonable due diligence

investigations before the Direct Listing, they would have uncovered that the Offering Materials

contained untrue statements of fact and omitted material facts.”).)

Further, just like the lead class plaintiffs in Suprema Specialties, Plaintiffs expressly pled

negligence in the opening paragraphs of the Securities Act Claims. (See ECF No. 68 ¶ 437

(“Plaintiffs assert strict liability and negligence claims.”); id. ¶ 441 (noting the claims in Counts

III–V “do not sound in fraud, and Plaintiffs expressly disclaim any allegations of fraud or

intentional misconduct in connection with these non-fraud claims”).) Additionally, Plaintiffs

clearly separated their claims under the Exchange Act and the Securities Act, and did not

incorporate allegations from the Exchange Act Claims into the Securities Act Claims. (See

generally id.) Although this may represent “artful” pleading, see Suprema Specialties, 438 F.3d at

273, the Court finds the disclaimers and the structure of the SAC along with the express

allegation(s) of ordinary negligence support a finding that the SAC’s pleading of the Securities

claim does not trigger the heightened pleading standard. See In re Cendant Corp. Litig., 60 F.

Supp. 2d 354, 364 (D.N.J. 1999) (“Unlike the complaint in Shapiro, this complaint does not

incorporate allegations of scienter and fraud into the § 11 claim. Rather, here the § 11 claim is

[pled] before any of the other claims. Although the plaintiffs have [pled] that certain defendants

acted fraudulently in violation of § 10(b), the § 11 claim is limited to negligence.”).

The Court, therefore, applies the liberal notice requirements of Federal Rule of Civil

Procedure 8 to Plaintiffs’ Securities Act Claims. See Suprema Specialties, 438 F.3d at 270 (“Where

a plaintiff’s Section 11 or Section 12(a)(2) claims are not grounded in allegations of fraud, the

liberal notice pleading requirements of Rule 8 apply.” (citing Adams Golf, 381 F.3d at 273 n.5).)

Rule 8 requires “a short and plain statement of the claim showing that the pleader is entitled to

relief.” Fed. R. Civ. P. 8(a)(2). Applying this liberal pleading standard, the Court finds Plaintiffs

have sufficiently alleged claims under Section 11.30 (See ECF No. 68 ¶¶ 452–91.) Accordingly,

Defendants’ Motion to Dismiss Count III is DENIED.

30 The parties relied in large part upon their arguments detailed above, supra Section III.A;

therefore, the Court does not make lengthy findings here. (ECF No. 78-1 at 46 (“Plaintiffs’

allegations fail to show that Defendants made any material false statements, see supra Section I.A.,

and therefore should be dismissed for the same reasons as the Exchange Act [C]laims.” (citations

omitted)); ECF No. 79 at 47 (“[F]or the reasons set forth in Sections I.A.1–3 supra, the Complaint

pleads that Defendants made material statements under either standard.”); ECF No. 80 at 18

(“[U]nder either Rule 8 or 9(b), Plaintiffs fail to plead falsity. Supra Section I.A.”).) Even if the

Court applied Rule 9(b)’s heightened pleading standard, Plaintiffs’ claims premised upon the

Securities Act Defendants’ omission of risks associated with Coinbase’s ability to safeguard its

customers’ crypto assets would survive. See supra Section III.A.1.i. As to the Proprietary Trading

Statements, the Court held Plaintiffs’ relevant allegations did not satisfy the heightened pleading

standard applicable for Section 10(b) claims under the Exchange. See supra Section III.A.1.ii.

However, the parties did not address whether Plaintiffs’ allegations that the Offering Materials

omitted material facts as to Coinbase’s involvement in proprietary trading of cryptocurrency on its

own exchange adequately support the Securities Act Claims under the liberal pleading standard of

Rule 8. Therefore, the Court does not address this theory of recovery here.

D. Defendants’ Motion to Dismiss Count IV (Violations of Section 12(a)(2) of the

Securities Act Against the Securities Act Defendants)

Defendants contend Count IV should be dismissed as Plaintiffs fail to properly plead

standing. (ECF No. 78-1 at 45–46.) Defendants submit: (i) the tracing requirement for Section 11

claims also applies to Section 12; (ii) because Plaintiffs cannot satisfy the tracing requirement, i.e.,

that they purchased registered shares, they cannot establish standing as “there is no obligation to

distribute a prospectus for transactions in unregistered shares,” (id. at 45); and (iii) “as an

aftermarket purchaser, Lead Plaintiff lacks standing because it did not purchase registered shares

from a person who sold ‘by means of’ the prospectus” (id. (quoting 15 U.S.C. § 771(a)(2)). (ECF

No. 78-1 at 45–46; see also ECF No. 80 at 17.) Alternatively, Defendants argue Plaintiffs have not

sufficiently pled a Section 12 claim. (ECF No. 78-1 at 47–48; ECF No. 80 at 18.) Defendants

assert: (i) Plaintiffs’ Section 12 claim is based on the same, inadequately alleged misstatements as

their Section 11 claim; (ii) “Plaintiffs fail to allege that either Coinbase or any of the Securities

Act Defendants are ‘statutory sellers.’” (Id. (quoting Pinter v. Dahl, 486 U.S. 622 (1988)).

In opposition, Plaintiffs submit they have adequately pled Section 12 standing. (ECF No.

79 at 46–47.) Specifically, Plaintiffs assert “Defendants erroneously claim that Section 12 applies

only to registered shares. . . . Section 12(a)(2) extends to any share offered or sold by means of a

misleading prospectus, regardless of whether the share is registered.” (Id. at 46 (citations omitted).)

Plaintiffs further argue the SAC sufficiently alleges the required elements of a Section 12 claim.

(Id. at 48.)

1. Section 12 Standing31

“Section 12(a)(2) claims concern the purchase of securities pursuant to a materially false

31 As Count IV is raised by Additional Plaintiffs, the Court limits its analysis to whether Additional

Plaintiffs have standing. (ECF No. 68 ¶ 523.)

or misleading prospectus or oral communication.” Suprema Specialties, 438 F.3d at 276 n.7.

Section 12 liability “cannot attach unless there is an obligation to distribute the prospectus in the

first place (or unless there is an exemption).” Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 571

(1995).

The Court is not persuaded by Defendants’ argument that Section 12 applies only to

registered shares. (See ECF No. 79 at 46 (citing Thomas Lee Hazen, Federal Securities Law

§ III.E.2.a n.308 (4th ed.) (“Although not expressly contained in the statute, the Supreme Court

has ‘read’ a public offering limitation into actions under § 12(a)(2). Gustafson v. Alloyd Co., 513

U.S. 561 (1995). Although the Court has thus limited § 12(a)(2) to public offerings, it is not limited

to registered offerings.”); In re Gap Stores Sec. Litig., 79 F.R.D. 283, 306 (N.D. Cal. 1978)

(holding Section 12(a)(2) “applies to the sale of all securities, registered and unregistered”)).)

Based on the reasoning detailed above, supra Section III.C.1., the Court finds Additional

Plaintiffs have sufficiently alleged standing under Section 12(a)(2) by alleging they purchased

Coinbase shares pursuant and/or traceable to the Prospectus (see ECF No. 68 ¶¶ 41, 42). Cf.

Suprema Specialties, 438 F.3d at 276 n.7 (accepting “as true plaintiffs’ allegations that they made

their stock purchases in or traceable to the [defendant company’s] public offerings” for a Section

12(a)(2) claim where there was an issue of whether plaintiffs’ stock purchases came from the

secondary market). Accordingly, Defendants’ Motion to Dismiss Count IV for lack of standing is

DENIED.

2. Additional Plaintiffs Have Sufficiently Alleged a Section 12 Claim

Section 12(a)(2) establishes civil liability for any person32 who “offers or sells” a security

“by means of a prospectus or oral communication, which includes an untrue statement of material

32 The Securities Act’s definition of “person” includes “a corporation.” 15 U.S.C. § 77b(a)(2).

fact or omits to state a material fact necessary in order to make the statements, in light of the

circumstances under which they were made, not misleading.” 15 U.S.C. § 77l(a)(2). A plaintiff

must adequately allege a defendant is a “seller.” See In re Westinghouse Sec. Litig., 90 F.3d 696,

716 (3d Cir. 1996). The Third Circuit has held that a seller, under Section 12(a)(2), “may be one

who passes title to the buyer for value (a direct seller) or one ‘who successfully solicits the

purchase, motivated at least in part by a desire to serve his own financial interests or those of the

securities owner’ (a solicitor seller).” Id. (quoting Pinter v. Dahl, 486 U.S. 622, 643 (1988)).

Here, Additional Plaintiffs provide the following allegations: Jones and the Director

Defendants “participated in the review, approval, and making of the statements in the Offering

Materials,” (ECF No. 68 ¶¶ 428–34); Armstrong, Haas, Jones, and the Director Defendants signed

the Registration Statement (ECF No. 68 ¶¶ 428–34, 445); Armstrong, Haas, Jones, Andreesen,

Ehrsam, Haun, and Wilson sold a substantial amounts of shares (id. ¶¶ 428–31, 434, 451);

Armstrong, Haas, Jones, and the Director Defendants were financially motivated (id. ¶¶ 74, 81,

428–31, 434, 451); “[t]he Securities Act Defendants were sellers, offerors, and/or solicitors of

purchasers of the Company’s common stock offered pursuant to the Direct Listing. The Offering

Materials were used to induce investors, such as [Additional Plaintiffs] . . . to purchase in

Coinbase’s common stock in the Direct Listing,” (id. ¶ 524); “[t]he Securities Act Defendants’

acts of solicitation included participating in the preparation of the false and misleading Offering

Materials. Thus, the Securities Act Defendants solicited [Additional Plaintiffs] . . . to buy Coinbase

common stock,” (id. ¶ 525).

Applying the liberal pleading standard under Rule 8, supra Section III.C.2., the Court finds

Additional Plaintiffs have adequately alleged the Securities Act Defendants constitute sellers under

Section 12(a)(2) of the Securities Act. See Westinghouse, 90 F.3d at 717 (“Taken in the light most

favorable to plaintiffs, however, the complaint does allege that the [company] defendants ‘solicited

plaintiffs’ to purchase [the company’s] securities and that in so doing they were motivated by a

desire to serve their own financial interests. Contrary to the district court's statement, these are

factual allegations—allegations plaintiffs will have to prove—and not bare legal conclusions.”);

Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 637 (3d Cir. 1989) (“It cannot be said at this

juncture that plaintiffs can prove no set of facts that would entitle them to relief.” (citations

omitted)); “In re Measurement Specialties, Inc., Civ. A. No. 02-1071, 2003 WL 27398420, at *12

(D.N.J. Sept. 29, 2003) (finding the complaint sufficiently alleged defendants were sellers where

“an inference can be drawn from the totality of the circumstances alleged in the complaint,” even

though the complaint did not “expressly allege that defendants solicited plaintiff to purchase

stock,” and did not “include a specific allegation that defendants ‘directly and actively participated

in the solicitation of the immediate sale,’” (quoting Westinghouse, 90 F.3d at 717 n.19)).

Accordingly, Defendants’ Motion to Dismiss Count IV is DENIED.

E. Defendants’ Motion to Dismiss Count V (Violations of Section 15 of the

Securities Act Against Armstrong, Haas, Jones, and the Director Defendants)

Defendants assert Plaintiffs’ claims for control person liability under Section 15 of the

Securities Act should be dismissed because Plaintiffs fail to plead an underlying violation under

Section 11 of the Securities Act. (ECF No. 78-1 at 48; ECF No. 80 at 18.) To state a claim under

Section 15 of the Securities Act, “the plaintiff must allege (1) a primary violation of the federal

securities laws by a controlled person or entity; (2) control of the primary violator by the defendant;

and (3) that the controlling person was in some meaningful way a culpable participant in the

primary violation.” Carmack v. Amaya Inc., 258 F. Supp. 3d 454, 466 (D.N.J. 2017) (quoting

Dutton v. Harris Stratex Networks, Inc., 370 F.R.D. 171, 178 (D. Del. 2010)).

The Court has held Plaintiffs sufficiently pled underlying violations of Section 11 and

Section 12(a)(2) against Armstrong, Haas, Jones, and the Director Defendants. Accordingly,

Defendants’ Motion to Dismiss Count V of the SAC is DENIED. See In re Schering-Plough

Corp./Enhance Sec. Litig., Civ. A. No. 08-397, 2009 WL 2855457, at *7 (D.N.J. Sept. 2, 2009)

(denying motion to dismiss Section 15 claim because the complaint adequately alleged the

individual defendant “committed primary violations of Sections 11 and 12(a)(2) of the Securities

Act”).

IV. CONCLUSION

For the reasons set forth above, Defendants’ Motion to Dismiss (ECF No. 78) is

GRANTED IN PART and DENIED IN PART. Defendants’ Motion to Dismiss Count I of the

SAC, to the extent it is premised upon the Proprietary Trading Statements and the Bankruptcy

Statements that tout customers’ trust in the Company, is GRANTED. The remaining portions of

Defendants’ Motion to Dismiss are DENIED. Plaintiffs may, within thirty (30) days of the date of

this Opinion, file a third amended consolidated class action complaint curing the deficiencies

addressed herein.33 Defendants may respond to the third amended consolidated class action

complaint, if filed, as appropriate and consistent with applicable federal and local rules. An

appropriate Order follows.

/s/ Brian R. Martinotti ____

HON. BRIAN R. MARTINOTTI

UNITED STATES DISTRICT JUDGE

Dated: September 5, 2024

33 Plaintiffs request leave to amend. (ECF No. 79 at 48.) Federal Rule of Civil Procedure 15(a)

allows a party to amend its pleadings after obtaining the Court’s leave or the written consent of its

adversary. Under this liberal rule, the Court must “freely give leave when justice so requires.” Fed.

R. Civ. P. 15(a)(2). This lenient standard ensures that “a particular claim will be decided on the

merits rather than on technicalities.” Dole v. Arco Chem. Co., 921 F.2d 484, 487 (3d Cir. 1990)

(citation omitted). Given that this is the first motion to dismiss the Court has addressed, the Court

will permit Plaintiffs leave to file a third amended consolidated class action complaint.