Lawsuit says Coinbase ignored red flags before user’s wallet was drained

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Coinbase lied to customers about its cybersecurity shortcomings and froze accounts, leading to the loss of thousands of dollars worth of crypto and a substantial amount of money from a user’s personal bank account, a new lawsuit alleges.

As reported by Law 360, Monday’s class action lawsuit describes how hackers drained Coinbase user George Kattula’s crypto wallet of $6,000 worth of tokens back in April, despite the “obvious red flags” staring Coinbase in the face. It also alleges that hackers obtained $1,000 from his linked bank account before using the funds to buy even more crypto.

Fortunately, Kattula was able to reverse the illegal bank transfer within hours, however, Coinbase wasn’t so helpful when it came to regaining the stolen crypto. Kattula claims the company froze his account, failed to recognize the odd location of the hacker’s IP address, and refused to reimburse him for any stolen funds.

The suit claims that Coinbase:

Lied to customers by “falsely lulling” them into believing their crypto accounts were safe.
Failed to implement secure, high-end cybersecurity measures.
Froze Kattula’s crypto account without good reason.
Didn’t adequately deal with customer complaints regarding security breaches.
Acted too slowly to protect customers’ crypto holdings.

“Had adequate cybersecurity protections been in place, the unauthorized access, unauthorized transfer of cryptocurrency, unauthorized wire of funds from plaintiff’s bank, and freezing of plaintiff’s account would not have occurred,” read Kattula’s complaint (Via Law360).

“Had plaintiff known that Coinbase would leave his assets vulnerable to theft and would freeze his account, plaintiff would not have used Coinbase’s service,” (our emphasis).

Lawsuit claims criminal T&Cs

Kattula says that Coinbase’s user agreement includes a set of requirements that are illegitimate and invalid.

This refers specifically to those that state users forgo their right to any class action lawsuit against Coinbase and that any disputes be settled via arbitration rather than by a judge or jury.

Kattula also claims Coinbase broke federal securities laws by operating as an unregistered exchange and broker.

If the lawsuit is successful, Kattula is asking Coinbase to cough up for any damages it caused to the plaintiffs and wants the company to remove its “onerous” user agreements. Katulla is also demanding the exchange introduce and pay for customer credit-monitoring services, significantly improve its security measures, and undergo cybersecurity audits.

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