MANHATTAN (LN) — A federal judge has dismissed securities fraud claims brought by 11 retail investors against Coinbase and its CEO Brian Armstrong over the 2022 collapse of Wrapped LUNA, holding the claims were filed more than a year past the statute of limitations and independently failed to meet the Private Securities Litigation Reform Act's heightened pleading standards. The court also compelled the plaintiffs' remaining claims to arbitration.
The plaintiffs — individual Coinbase customers who purchased and held WLUNA suspended trading on May 27, 2022 — alleged that Coinbase misled them in three ways: by falsely representing that WLUNA maintained a 1:1 peg to Terra's native LUNA token, by characterizing the trading suspension as temporary while knowing it would never be lifted, and by providing materially inaccurate account statements that, according to the complaint, reflected purchases totaling approximately $76 million for one plaintiff — figures the complaint itself described as contradicting that plaintiff's transaction history.
The court held all three theories untimely. The facts underlying each claim were discoverable by May 2022, the judge wrote, yet the plaintiffs did not file until May 2025 — a year after the two-year limitations period under Section 10(b) of the Securities Exchange Act had run. The plaintiffs' argument that they needed expert confirmation before bringing the peg claim drew a pointed response: the desire for such confirmation, the court wrote, is no excuse for evading the statute of limitations.
On the temporary-suspension theory, the court was equally unsparing. Even if Coinbase's announcement could have been read as implying a temporary pause, the judge wrote, after the suspension had continued for nearly a year, no reasonable person could have supposed that the suspension was not likely to last indefinitely. The court also noted, in a footnote, that it had considered sanctioning plaintiffs' counsel for placing quotation marks around the word "temporary" in an earlier complaint when Coinbase had never used that word in its official announcements — ultimately electing not to impose sanctions while remaining critical of the mistake.
The securities claims failed on the merits as well. On the peg theory, the court held that Coinbase's website statement — that WLUNA is an Ethereum token intended to represent Terra's LUNA on the Ethereum blockchain — contained no guarantee that WLUNA would track LUNA's price. The plaintiffs' alternative argument, that the word "wrapped" itself implied a 1:1 peg as a matter of crypto-industry convention, relied almost entirely on an expert report by Extra von NotHaus that the court struck under Federal Rule of Civil Procedure 12(f) because it was not incorporated by reference into the complaint and was not a written instrument the court could consider stage.
On scienter, the plaintiffs pointed to Coinbase Ventures' $25 million investment in Terraform Labs and CEO Armstrong's alleged indirect equity exposure as evidence of motive. The court rejected that theory, citing Second Circuit precedent holding that generalized allegations of a desire to profit do not establish motive under the PSLRA. The plaintiffs' most specific scienter allegation — that a Coinbase Cloud employee named "Rohit" participated in a May 12, 2022 Terraform "war-room" chat where Do Kwon's plans for the New LUNA fork were discussed — also fell short because the complaint failed to identify Rohit's role or seniority, what was disclosed, or whether the information ever reached anyone responsible for Coinbase's public statements.
The reliance and loss causation theories fared no better. The court held the account-statement reliance theory self-defeating because the plaintiffs themselves described the figures as "impossibly large" and "wildly inconsistent with on-chain reality" — making any claimed reliance unreasonable as a matter of law. On loss causation, the court held that the plaintiffs' theory required an unbroken chain of contingent steps — unwrapping WLUNA, holding native LUNA through Terraform's snapshot dates, and receiving a sufficient New LUNA airdrop allocation — each dependent on the independent decisions of Terraform, over which Coinbase had no control. The court characterized that chain of inferences as speculative and distended, citing district court precedent.
The court also rejected the plaintiffs' argument that the limitations clock could not have started until a 2023 Southern District of New York ruling held that WLUNA was a security, noting that the discovery rule extends only to facts, not to legal developments.
The non-securities claims — including RICO, breach of contract, unjust enrichment, and interference with ownership rights — were compelled to arbitration under Coinbase's User Agreement, which the court held the plaintiffs had failed to challenge with anything beyond conclusory assertions of unconscionability. The court noted that elsewhere complaint, the plaintiffs had described the very same agreement as "valid [and] enforceable."