Oregon Charges Ahead with a New Lawsuit Against Coinbase, Intensifying the War Over Crypto Regulation

Legal tensions surrounding crypto exchange Coinbase have reignited following a new lawsuit filed by Oregon's Attorney General

The U.S. state of Oregon has filed a lawsuit against cryptocurrency exchange Coinbase, alleging violations of state securities law, in a move that could escalate the ongoing battle over crypto regulation.

The case, which comes in the wake of the U.S. Securities and Exchange Commission’s (SEC) surprising withdrawal of its federal claims against Coinbase last month, will see the state pursue claims that Coinbase has illegally sold unregistered securities in Oregon.

The complaint, filed on April 12 by Oregon Attorney General (AG) Ben MoNewUser in the Circuit Court of Multnomah County, names Coinbase and its Chief Executive Officer (CEO), Brian Armstrong, as defendants. It also criticizes Coinbase for including arbitration clauses and class action waivers in its user agreements, which the attorney general argues curtails consumer protections.

“Coinbase has for years defied the regulatory structure and requirements established by the Oregon Legislative Assembly to protect Oregon investors,” the lawsuit alleges.

The lawsuit comes as the SEC, under the leadership of Chair Gary Gensler, has faced criticism for an alleged overreach in its interpretation of securities law in the Web3 sector.

Earlier this year, the agency encountered setbacks in two high-profile cases. One case involved a judge's refusal to allow the SEC to intervene in a lawsuit filed by an investor against Coinbase. The other case saw the SEC lose an appeal against a lower court's ruling that units sold by a cryptocurrency project, known as "Lumens," are not securities.

In a series of posts on X, formerly Twitter, Coinbase Chief Legal Officer (CLO) Paul Grewal expressed surprise at the "motivation" behind the Oregon AG’s complaint.

If there were any doubt about the motivation behind it, look no further than section 9, where it 1) omits Judge Failla’s order granting interlocutory appeal of the SEC case; 2) omits any mention of Judge Torres’ decision in XRP.

He added: “3) bears the stamp of the two private law firms brought on to profit from this suit; 4) labels the chairman of the SEC as a ‘crypto lobbyist’ and 5) decries the reassignment of Gensler’s lead lawyer to the IT department. Not exactly subtle.”

The claims made by Oregon are focused on Coinbase’s activities in facilitating cryptocurrency transactions within the state. The state alleges that Coinbase has sold crypto assets, including Bitcoin, Ethereum, Litecoin, and Bitcoin Cash, in violation of Oregon securities law.

These digital assets, according to the complaint, are deemed securities under Oregon law, and Coinbase allegedly sold them without registering as a securities broker-dealer or investment adviser.

Furthermore, the attorney general criticizes Coinbase for allegedly failing to comply with the state’s anti-fraud and anti-unfair trade practices laws. The complaint also notes the presence of arbitration clauses and class action waivers in Coinbase’s user agreement, asserting that they limit the scope of consumer protections.

Citing a statute that permits the attorney general to seek specific remedies for violations of securities law, the AG is applying for an injunction to halt Coinbase’s alleged unlawful conduct.

The lawsuit names two private law firms, Chiu, Chu, Burner, McGee, Balko & Polio and Miller, Asher, Steeves, Yover, Semple & May, as co-counsel for the AG.

Coinbase is currently engaged in a separate legal battle with the SEC, which began in December 2022. In this case, the SEC is seeking to enjoin Coinbase from further violations of federal securities law.

However, in a surprising move last month, the SEC moved to formally withdraw its claims against Coinbase. The agency also ended the suit without addressing the validity of its allegations.

This shift came amid leadership changes at the agency, including the reassignment of the agency’s lead crypto enforcement attorney, and the appointment of former industry figure Paul Atkins as chairman.