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Coinbase exposed user accounts to thieves, lawsuit claims

Don't fall for these crypto and NFT scams
Don't fall for these crypto and NFT scams 05:12

A group of cryptocurrency investors is suing Coinbase, alleging that lax security systems at the crypto trading platform exposed their accounts to hackers. 

More than 100 Coinbase users, led by Georgia resident George Kattula, filed a class action lawsuit in U.S. District Court for the Northern District of Georgia last week accusing the company of arbitrarily locking them out of their accounts. That prevented them from selling off underperforming tokens, leading to financial losses, they allege. 

"Contrary to its representations, Coinbase does not properly employ standard practices to keep consumers' accounts secure," the complaint states. "And Coinbase improperly and unreasonably locks out its consumers from accessing their accounts and funds, either for extended periods of time or permanently."

According to the suit, Kattula opened an account with Coinbase in January and purchased $6,000 worth of cryptocurrency. Three months later, a thief hacked his account and emptied it. Coinbase was able to recover $1,000 of his funds, but the rest remains missing, the complaint states. 

Kattula and his fellow plaintiffs are seeking at least $5 million in damages.

Heists on the rise

Although adoption of bitcoin, ether and solana has exploded in recent years, the crypto market remains largely unregulated in the U.S. It also been the target of frequent thefts.

In June, for example, hackers made off with about $100 million in cryptocurrency from a so-called blockchain bridge operated by Harmony, adding to the more than $1 billion already stolen in crypto so far this year. In August, $200 million in cryptocurrency was stolen in a heist targeting blockchain bridge Nomad. And Crypto lender Celsius Network filed for bankruptcy last month after being hacked last December for a reported $120 million. It's unclear if Celsius customers will have their cryptocurrency refunded. 

Based in California, Coinbase is one of the few publicly traded crypto exchanges, boasting 103 million users, nearly 5,000 employees and about $96 billion worth of assets on its platform. 

Coinbase declined to comment on the lawsuit. But a spokesperson said it takes extensive measures to make sure customer accounts are safe. 

"We educate our customers on how to avoid cryptocurrency scams and report known scams to appropriate law enforcement authorities," the spokesperson said in a statement to CBS MoneyWatch. "We encourage all Coinbase customers to secure all of their online accounts consistent with this guidance in our help center."

The case highlights how important it is for crypto exchanges to educate users on how to protect their accounts, said Joe McGill, a cybersecurity expert who runs crypto scam reporting website Chainabuse.

Crypto exchanges have beefed up their security measures in recent years, McGill said, but it's still unclear if the Coinbase case will have any bearing on other crypto investors who want their hacked funds returned. 

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