Sept 6 (Reuters) - A federal judge rejected Coinbase's

bid to dismiss a proposed class action by shareholders

who accused the operator of the largest U.S. cryptocurrency

exchange of downplaying the likelihood it would be sued by the

U.S. Securities and Exchange Commission.

U.S. District Judge Brian Martinotti in Newark, New Jersey,

ruled on Thursday, 15 months after the SEC's June 6, 2023 civil

lawsuit accusing Coinbase of operating an unregistered

securities exchange. Coinbase's share price fell 12% that day.

Martinotti said shareholders adequately alleged that

Coinbase and top executives defrauded them by describing "a

favorable picture of the improbability that the SEC would file

an enforcement action by repeatedly emphasizing that the crypto

assets they listed were not securities."

In his 50-page decision, Martinotti said shareholders could

also pursue some claims that Coinbase misrepresented the risk

that customers might lose assets stored with the company in the

event the company filed for bankruptcy.

Coinbase's share price fell more than 26% on May 11, 2022,

the day after it added disclosures and reported a

larger-than-expected decline in quarterly revenue.

The judge dismissed claims that Coinbase falsely denied it

engaged in proprietary trading. Coinbase Chief Executive Brian

Armstrong and several other executives are also defendants.

Coinbase said in a statement on Friday: "We remain confident

that we are right on the facts and the law, and we look forward

to proving the rest of our case."

Lawyers for the shareholders did not immediately respond to

requests for comment.

In March, a federal judge in Manhattan rejected Coinbase's

bid to dismiss the SEC lawsuit.

The proposed class action led by Swedish pension fund Sjunde

AP-Fonden covers Coinbase shareholders from April 14, 2021, to

June 5, 2023.

The case is In re Coinbase Global Inc Securities Litigation,

U.S. District Court, District of New Jersey, No. 22-04915.