Coinbase Mass Arbitration
On October 14, 2022, Freedman Normand Friedland LLP filed a mass arbitration on behalf of nearly 100 victims of crypto mining scams facilitated on Coinbase’s platform which resulted in the theft of millions of dollars’ worth of crypto assets from victims’ Coinbase Wallet accounts.
As alleged in the demand, the Coinbase Wallet suffered from a significant security flaw that allowed scammers to drain Claimants’ Wallets of all their crypto without authorization. Specifically, Claimants were led to believe that they were buying a “voucher” or “mining certificate” with their crypto to use in a decentralized application. What they did not realize is that they were actually engaging with a smart contract that gave the scammers unlimited access to all the crypto in their Coinbase Wallet, both now and in the future. The Wallet’s user interface provided no warnings that this was taking place, and there was no way for any reasonable consumer to know about the smart contract permissions. Instead, without adequate security restrictions or warnings to users, Claimants were lulled into a false sense of security by Coinbase’s repeated representations that the “only way to access the cryptocurrency” held in a particular Wallet was by obtaining a person’s 12-word “Recovery Phrase,” which did not happen here.
Further, even after Claimants and other victims expressly and repeatedly identified the fraudulent dApps, the security flaw, and reported the thefts to Coinbase, Coinbase continued to allow these dApps to remain on its platform, failed to correct the problem, and failed to notify the Wallet holders for months about this significant security issue. Had Coinbase done so on a timely basis, millions of dollars in losses would have been avoided. Instead, due to Coinbase’s gross negligence, Claimants and hundreds (if not thousands) of Coinbase Wallet users have suffered devastating financial losses.
Claimants allege violations of the Electronic Funds Transfer Act, 15 U.S.C. Section 1693 et. seq. (“EFTA”) and 12 C.F.R. Sections 1005-1005.20 (“Regulation E” of the EFTA), as well as other statutes and theories of liability against Coinbase in connection with the theft of their crypto assets stored on Coinbase’s platform at the time of the unauthorized transactions.
If you have additional information relating to the Coinbase Wallet scams or its security features, or would like to speak with us concerning this case, please submit your information in the questionnaire. Claimants’ Consolidated Arbitration Demand, as well as recent articles published by the Washington Post can be viewed below.