- A new lawsuit has just alleged that Coinbase directors, including CEO Brian Armstrong, avoided over $1 billion in losses by selling shares during the company’s 2021 direct listing.
- Judge Kathaleen St. J. McCormick has just ruled that the lawsuit will proceed.
- Coinbase board member Marc Andreessen is accused of offloading $118.7 million in stock through his venture firm, Andreessen Horowitz.
A legal battle involving Coinbase has just taken on another turn. A Delaware judge recently decided that a shareholder lawsuit against some of the exchange’s top executives can continue.
This case is related to how years ago, leaders at the company allegedly used insider information to protect their own wealth, at the expense of investors.
The Coinbase Insider Trading Lawsuit
The legal battle dates back to April 2021, when the company first hit the public markets.
Unlike most firms, it chose a direct listing, which is different from a traditional initial public offering. Existing shareholders could also sell their stock immediately and there were no lockup periods to stop them from exiting.
The lawsuit claims that insiders took full advantage of this setup, and Shareholder Adam Grabski, who initially filed the original complaint, is demanding reparations.
He alleged that directors sold more than $2.9 billion in stock and according to the filing, CEO Brian Armstrong sold roughly $291.8 million himself.
Chief Operating Officer Emilie Choi and co-founder Fred Ehrsam also reportedly sold hundreds of millions in shares and the plaintiffs believe these leaders knew the stock was overvalued before the public found out.
Why the Judge Rejected the Dismissal Request
The company tried to end this case early, and formed a special litigation committee to investigate the claims.
This committee spent ten months reviewing the stock sales and eventually cleared the directors of any wrongdoing. They argued that the sales were small and necessary for market liquidity.
However, Judge McCormick found a problem with the committee itself.
One member of the committee, Gokul Rajaram, has deep ties to board member Marc Andreessen. For context, Andreessen is one of the accused individuals in the Coinbase lawsuit.
Records show that Rajaram and Andreessen Horowitz participated in at least 50 financing rounds together since 2019 and the judge noted that these “thick ties” create a conflict of interest.
She did not accuse anyone of acting in bad faith, but noted that the lack of total independence was enough to keep the case alive.
Record Sales and Dropping Valuations
The timing of the stock sales is also another point in this. When the company went public, shares started trading at $381.
Just five weeks later, the price fell by more than 37%. This drop happened as the firm showed new details about its revenue. It also announced a deal that would dilute existing shares and by mid-May, billions of dollars in market value had vanished.
The lawsuit is pointing to an internal tax valuation that was much lower than the market price, and the plaintiffs argue that directors saw this data and decided to sell before the crash.
While plaintiffs say that Marc Andreessen allegedly sold $118.7 million through his firm during this window, the defendants strongly deny these claims.
They argued that the stock price simply follows the movement of Bitcoin, and they insist they were “bullish” on the company and only sold a tiny fraction of their holdings.
Source: https://www.livebitcoinnews.com/armstrong-other-coinbase-execs-face-lawsuit-over-alleged-insider-trading/
