Coinbase Executives Sued For Allegedly Profiting From Inside Information During Public Listing

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Asad Gilani

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October 23, 2023

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A Coinbase shareholder has filed a lawsuit against the crypto exchange’s nine executives and board members. 

The stockholder alleges that the executives gained insider information during the company’s public listing.

Coinbase Faces A Stockholder Derivative Complaint

On May 1, shareholder Adam Grabski filed a stockholder derivative complaint in the Delaware Chancery Court against some executives and board members of the exchange. 

The filing implicated the Chairman and CEO of Coinbase, Brian Armstrong, and some executives and board members. 

The suit alleges that the top people at Coinbase profited through selling the exchange’s shares using insider information.

Further, the suit mentioned that the executives of Coinbase circumvented losses of about $1 billion. 

They sold many shares during the company’s public listing in April 2021.

Some securities filings revealed that the defendants sold up to $2.9 billion in Coinbase shares. 

Notably, they sold off the shares within a month after the company’s public listing.

Within the first month after listing on the NYSE, insiders cashed out billions of dollars worth of @Coinbase $COIN stock

Among them, was $291 million from @Coinbase founder and CEO @brian_armstrong $COIN stock is down 88% since the day it went public pic.twitter.com/qfVZ1ywpeT

— Pledditor (@Pledditor) May 2, 2023

The filing noted that the CEO, Brain Armstrong sold $291.8 million of Coinbase shares. 

Similarly, Chief Financial Officer Alesia Haas and Chief Operating Officer Emelie Choi sold shares worth $99.3 million and $219.7 million, respectively. 

Fred Wilson sold the largest number of shares as compared to any other sale of his Coinbase stock. 

Before Coinbase went public, Wilson held over 7% of the company’s shares, and he sold shares worth approximately $1.8 billion.

Defendants’ Actions Resulted in Massive Losses to the Company and other Shareholders

The plaintiff Granski alleged that the defendants sold off their shares before “the compression of the Company’s revenue margins during the first fiscal quarter and the issuance of a dilutive convertible offering was publicly disclosed.” impacting the share price negatively. 

Hence, the share price suffered over 37% decline by May 18.

Granski believes that the defendants won’t have had the opportunity to sell their shares if the exchange had made an initial public offering instead of a direct listing. 

Also, such a move would have prevented the value of the shareholdings from being diluted.

Coinbase lost more than $37 billion in market value following the disclosure. 

The plaintiff has filed a lawsuit claiming breach of fiduciary duty and unreasonable enrichment against them. 

The plaintiff is seeking damages with interest, as well as the return of any profits made by the defendants and repayment of all expenses related to the lawsuit.

This lawsuit came the same day another Coinbase user sued the exchange for violating biometric privacy laws in Illinois.