The Supreme Court has agreed for the second time in a year to hear an appeal from Coinbase, a major cryptocurrency exchange that wants to compel disgruntled customers to submit to private arbitration instead of adjudicating their dispute in the courts.
Companies often prefer arbitration to the courts, saying the process resolves cases with greater speed and reduced expense. Some consumer advocates prefer the courts because in their view the judicial system provides consumers with more options and is less likely to side with the companies being sued.
The Supreme Court granted the petition for certiorari, or review, in Coinbase Inc. v. Suski (court file 23-3) in an unsigned order on Nov. 3. The court didn’t provide reasons for its decision. No justices dissented. At least four of the nine justices must vote for a petition for it to be granted and move forward to the oral argument stage.
The Supreme Court previously weighed in on Coinbase-related disputes. Last year, it refused emergency applications from Coinbase to stay two class-action lawsuits pending against the company. Coinbase had asked the court to put two lawsuits filed by users on hold, arguing that not doing so would cause the company irreparable harm.
And on June 23, the Supreme Court ruled 5–4 in Coinbase Inc. v. Bielski that customer disputes shouldn’t move forward in the lower courts, while appellate courts have yet to rule on the company’s request to divert those cases to arbitration panels.
The SEC claims that Coinbase “intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law.”
This failure to register “has deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others,” the agency said.
In the case at hand, lead respondent David Suski and other Coinbase customers participated in a sweepstakes that offered entrants the opportunity to win prizes of as much as $1.2 million in Dogecoin, a digital currency.
Despite this forum-selection provision, Coinbase insisted that the dispute raised by its customers who consented to arbitration of disputes in their user agreements with Coinbase go to arbitration.
The respondents argued that the forum-selection provision in the sweepstakes rules governs in sweepstakes-related disputes and filed a class-action lawsuit in federal court in California, arguing that the sweepstakes rules violated California law.
Coinbase argued that any dispute about the primacy of the arbitration provision in the user agreement must be sent to an arbitrator.
A federal district judge refused to send the dispute about the arbitrability of the case to an arbitrator.
The judge found that the forum-selection clause in the sweepstakes rules had the effect of narrowing the parties’ arbitration agreement.
“The dispute here is not over the scope of the arbitration provision, but rather whether the agreement was superseded by another separate contract,” the judge said.
The judge determined that the parties hadn’t “clearly and unmistakably delegated” to the arbitrator “how to address the interaction between two separate contracts,” the petition stated.
Coinbase was founded in 2012, originally as a platform for sending and receiving Bitcoin, the best-known cryptocurrency, Investopedia previously reported.
The decentralized company has more than 4,900 employees worldwide but has no main headquarters. The exchange deals in more than 100 tradable cryptocurrencies, including Bitcoin, Ethereum, Dogecoin, Cardano, Stellar Lumens, and Litecoin.
The platform has more than 98 million users in more than 100 countries who trade about $309 billion per quarter. It has $256 billion in assets and supports 13,000 financial institutions.
Although many investors are unfamiliar with cryptocurrencies, which are known for their volatility, they have been growing in popularity. There are reportedly more than 19,000 different cryptocurrencies in circulation. A cryptocurrency can be defined as a digital currency that is secured by cryptography, which reportedly makes counterfeiting or double-spending almost impossible.
“Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency. Instead, these tasks are broadly distributed among a cryptocurrency’s users via the internet,” according to Forbes. The transactions are verified on a blockchain, which is “an open, distributed ledger that records transactions in code.”
The decision to hear the Coinbase appeal came a day after the crypto world was rocked by the conviction of Sam Bankman-Fried, founder of the Bahamas-based crypto exchange FTX and a major Democratic Party donor, on wire fraud, securities fraud, and money laundering charges. FTX customers and those who lent money to Alameda Research, a hedge fund affiliated with the exchange, reportedly lost billions of dollars.
Mr. Bankman-Fried “perpetrated one of the biggest financial frauds in American history,” Damian Williams, the U.S. attorney for the Southern District of New York, said on Nov. 2 following a Manhattan jury’s verdict.
“The cryptocurrency industry might be new; the players like Bankman-Fried might be new,” the prosecutor said. “But this kind of fraud, this kind of corruption, is as old as time.”
Mr. Bankman-Fried faces up to 110 years in prison. His sentencing is set for March 28.
A date for oral arguments in the newly granted Supreme Court case hasn’t yet been determined.
Mr. Suski’s attorney, David J. Harris Jr. of Finkelstein and Krinsk in San Diego, said he was pleased the court acted.
“We look forward to advocating to the Supreme Court on behalf of damaged Coinbase users, and on behalf of U.S. consumers as a whole,” Mr. Harris told The Epoch Times by email.
“We are hopeful that the court, like every judge below, will hold Coinbase to the plain language of its own contracts with consumers.”
The Epoch Times also reached out for comment to Coinbase’s attorney, Jessica Ellsworth of Hogan Lovells in Washington, but didn’t receive a reply by press time.
