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Southern District Of New York Dismisses Securities Claims Against Cryptocurrency Exchange And Compels Remaining Claims To Arbitration
06/09/2026On May 7, 2026, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York dismissed federal securities claims against a large cryptocurrency exchange (the “Company”) and its CEO (collectively, “Defendants”) and compelled the remaining claims to arbitration. Joel Heabeart, et al., v. Coinbase, Inc., et al., No. 25-cv-9197-JSR (S.D.N.Y. May 7, 2026). Plaintiffs asserted claims against Defendants under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) based on alleged misstatements concerning the collapse of a cryptocurrency called “LUNA” in May 2022. The Court dismissed the securities claims as untimely and insufficiently pleaded and compelled the remaining non-securities claims to arbitration.
According to plaintiffs, the Company listed an Ethereum token called “Wrapped LUNA” (“WLUNA”) that was “intended to represent” LUNA and exchangeable one-for-one with LUNA through a WLUNA partner. In May 2022, LUNA’s developer’s blockchain ecosystem allegedly collapsed, causing the value of LUNA and, in turn, WLUNA, to fall. The Company allegedly announced that it would suspend WLUNA trading effective May 27, 2022. Plaintiffs alleged LUNA’s developer then created a new token, “New LUNA” and renamed the original LUNA as “LUNC,” “airdropped” New LUNA to LUNC holders, but that the Company’s suspension prevented WLUNA holders from moving, unwrapping, and converting their tokens in time to participate.
The Court identified three alleged Exchange Act theories: (1) Defendants misrepresented that WLUNA was “pegged 1:1”; (2) Defendants implied that WLUNA trading suspension was temporary while knowing trading would not resume; and (3) Defendants issued materially inaccurate account statements and tax documents.
The Court first held the Exchange Act claims were time-barred because Plaintiffs should have discovered the facts underlying them more than two years before filing suit in May 2025. The “peg” theory was untimely because plaintiffs pleaded that WLUNA’s lack of true one-to-one peg was “publicly verifiable at all times”; the “temporary suspension” theory was untimely because no reasonable person would have viewed the suspension as “temporary” after it had persisted for nearly a year; and the “account-statement” theory was untimely because the inaccuracies were obvious and should have been discovered earlier.
The Court also held the Exchange Act claims also warranted dismissal for plaintiffs’ failure to satisfy essential pleading requirements. On falsity, the Court found that Defendants never guaranteed WLUNA would track LUNA’s price, and that plaintiffs pleaded no particularized facts showing Defendants understood the word “wrapped” in WLUNA to mean one-to-one price-tracking logic. The suspension theory also failed because, in context, no reasonable investor would have read the Company’s announcement that trading had been “suspended” as a promise to resume trading, and plaintiffs did not plead who made any contrary assurances, when, to whom or how. Finally, the Court found the alleged inaccuracies in plaintiffs’ account statements were too obvious to mislead a reasonable investor.
The Court further held plaintiffs failed to plead scienter. Plaintiffs alleged that Defendants’ investment in LUNA’s developer gave them a motive to support LUNA’s price, but the Court found no concrete, personal benefit from the alleged fraud, as required to aver motive as a matter of law. Nor did plaintiffs plead conscious recklessness: they did not identify specific reports, employee allegations, internal findings, or communications, showing that Defendants knew any challenged statement was false.
Finally, the Court concluded plaintiffs failed to plead loss causation. It found to be significant that plaintiffs’ theory that but for the operational shutdown they would have received New LUNA that would have offset their losses depended upon an impermissibly attenuated chain of events: each plaintiff would have had to unwrap WLUNA, convert it to native LUNA, hold it at the “snapshot dates,” and receive a particular quantity of New LUNA to offset their losses.
The Court compelled arbitration of the remaining non-securities claims, including RICO, unjust enrichment, interference with ownership rights, breach of contract, and breach of implied covenant, under Company’s standard user agreement. Accordingly, the Court dismissed the Exchange Act claims, stayed the case, and referred the remaining claims to arbitration.
