The São Paulo State Court ordered Coinbase to return nearly $100K to a user after unauthorized wallet transactions occurred. Coinbase failed to prove the user initiated the transaction or that basic security measures existed in the wallet. The ruling applies provisions of Brazil's Customer Protection Code, which places the burden of proof on service providers, and may set a precedent affecting self-custody cryptocurrency wallet providers.
Court Orders Coinbase to Return Nearly $100K
The São Paulo State Court ruled against Coinbase in a case involving a user who deposited funds into the Coinbase wallet and claimed the funds disappeared without authorization. The court cited the Customer Protection Code provisions, which place the burden of proof for any claim on the business providing the service. Coinbase was ordered to return the entire amount plus legal interest. The customer claimed that the funds disappeared from their wallet without authorization.
Coinbase Defense Rejected by São Paulo Court
Coinbase alleged that it was not involved in the matter because the wallet's private key was under the user's full control. Nonetheless, Coinbase failed to prove that the wallet holder did initiate the transaction and was unable to demonstrate the existence of security measures to prevent this outcome. The amount presented by the user was not contested by Coinbase.
Attorney Highlights Liability for Self-Custody Providers
Raphael Souza, a specialized cryptocurrency attorney, highlighted the relevance of this decision for self-custody wallet providers, which have a duty to build software resilient enough to withstand these attacks. Souza told Portal do Bitcoin that this ruling dismantles two common arguments by crypto companies. "The first is that a self-custody portfolio does not generate liability. Anyone who develops and puts a product on the market is responsible for its security, regardless of how the technical architecture works behind it." This applies to Coinbase, which is a registered company in Brazil, Souza assessed.
Magistrate Criticizes Coinbase Technical Explanations
Magistrate Ju Hyeon Lee criticized Coinbase on the matter of technical documentation. The other argument dismantled is that technical documents don't aid in these cases by themselves if companies fail to provide a thorough explanation, aiding courts in understanding them. "Coinbase had every opportunity to prove that the investor authorized the transaction, explain the technical records, and inform where the funds went. It chose not to do any of that," Souza concluded.
FAQ
What did the São Paulo State Court order Coinbase to do?
The São Paulo State Court ordered Coinbase to return nearly $100K to a user who deposited funds into the Coinbase wallet and claimed the funds disappeared without authorization.
Why did Coinbase lose the case?
Coinbase lost because it failed to prove that the wallet holder initiated the transaction and was unable to demonstrate the existence of security measures to prevent unauthorized transactions.
What legal principle did the court apply in this case?
The court applied provisions of Brazil's Customer Protection Code, which place the burden of proof for any claim on the business providing the service.
