Coinbase, one of the world's largest cryptocurrency exchanges, and its CEO Brian Armstrong are facing a new class-action lawsuit alleging that the company deceived investors by selling unregistered securities and operating an illegal business model.

The lawsuit, filed in the United States District Court for the Northern District of California San Francisco Division, represents plaintiffs Gerardo Aceves, Thomas Fan, Edwin Martinez, Tiffany Smoot, Edouard Cordi, and Brett Maggard from California and Florida. The complainants allege that Coinbase's digital asset sales knowingly violated state securities laws since the company's inception.

Specifically, the lawsuit claims that the tokens of Solana (SOL), Polygon (MATIC), Near Protocol (NEAR), Decentraland (MANA), Algorand (ALGO), Uniswap (UNI), Tezos (XTZ), and Stellar Lumens (XLM) are securities under applicable laws.

The plaintiffs assert that Coinbase admitted in its user agreement that it is a "Securities Broker," which would make the digital assets sold on the exchange investment contracts or other securities. They also claim that Coinbase Prime, the company's prime brokerage service, operates as a securities broker.

The complainants are seeking full rescission (cancellation) of the alleged securities purchases, statutory damages under state law, and injunctive relief through a jury trial. This lawsuit bears similarities to another class-action suit alleging consumer harm from Coinbase's sale of unregistered securities.

Coinbase has previously argued that secondary sales of cryptocurrency assets do not meet the criteria for securities transactions and has disputed the relevance of securities regulations in this context.

This new lawsuit is distinct from Coinbase's highly publicized legal battle with the U.S. Securities and Exchange Commission (SEC), which also questions whether tokens sold on Coinbase should be classified as securities. Recently, Coinbase filed an interlocutory appeal in response to a judge's decision allowing the SEC case to proceed.

In an April 26 filing in the U.S. District Court for the Southern District of New York, crypto lawyer John Deaton, who is currently running an election campaign to unseat Senator Elizabeth Warren, filed an amicus brief in support of Coinbase's motion for an interlocutory appeal on behalf of 4,701 Coinbase customers.

Despite the legal challenges, Coinbase reported a strong rebound in the first quarter of 2024, supported by an uptick in market performance and the launch of spot Bitcoin (BTC) exchange-traded funds (ETFs). The exchange posted $1.6 billion in total revenue and $1.2 billion in net income for the first quarter, achieving $1 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

The new lawsuit adds to the ongoing regulatory scrutiny and legal battles faced by Coinbase and other cryptocurrency exchanges over the classification and treatment of digital assets. As the industry continues to evolve, questions surrounding securities laws and investor protection remain a point of contention between regulators and market participants.