A shareholder of Coinbase, one of the leading cryptocurrency exchanges, has recently taken legal action against nine executives and board members of the company. The lawsuit claims that these individuals engaged in insider trading during Coinbase’s public listing, thereby profiting unfairly from privileged information.
Allegations of Insider Trading Lead to Stockholder Derivative Complaint
Adam Grabski, a shareholder, filed a stockholder derivative complaint on May 1, 2023, in the Delaware Chancery Court, targeting several key figures within Coinbase. Among the accused are Brian Armstrong, the Chairman and CEO, along with other executives and board members. The lawsuit asserts that these individuals sold their shares using insider information, resulting in significant personal gains.
Profits and Losses: The Inside Story
According to the lawsuit, Coinbase’s top executives allegedly bypassed losses amounting to approximately $1 billion by strategically selling off their shares following the company’s public listing in April 2021. Securities filings indicate that the defendants collectively sold up to $2.9 billion worth of Coinbase shares. Shockingly, these sales occurred within a month of the exchange going public.
Brian Armstrong, the CEO, is reported to have sold $291.8 million worth of shares, while Chief Financial Officer Alesia Haas and Chief Operating Officer Emelie Choi sold shares worth $99.3 million and $219.7 million, respectively. Fred Wilson, holding over 7% of Coinbase’s shares, made the largest sale, disposing of approximately $1.8 billion worth of shares.
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
Massive Losses Incurred: Impact on the Company and Shareholders
The plaintiff, Grabski, alleges that the defendants’ actions resulted in significant losses for Coinbase and its shareholders. These losses were exacerbated by the compression of the company’s revenue margins during the first fiscal quarter and the subsequent disclosure of a dilutive convertible offering, both of which negatively affected the share price. As a result, the share price declined by more than 37% by May 18.
Grabski further argues that if Coinbase had chosen to go public through an initial public offering instead of a direct listing, the defendants would not have had the opportunity to sell their shares prematurely. Such a decision would have protected the value of the shareholders’ holdings from being diluted.
Coinbase’s market value plummeted by more than $37 billion following the disclosure of these allegations, representing a significant blow to the company’s financial standing.
Legal Consequences and Seeking Redress
The plaintiff’s lawsuit accuses the defendants of breaching their fiduciary duty and engaging in unreasonable enrichment. Seeking justice, Grabski is pursuing damages, including interest, and aims to reclaim any profits obtained by the accused parties. Additionally, the plaintiff is requesting reimbursement for all expenses related to the legal proceedings.
It is worth noting that this lawsuit was filed on the same day that another Coinbase user sued the exchange for violating biometric privacy laws in Illinois.
In conclusion, the allegations of insider trading and unethical conduct leveled against Coinbase’s executives have triggered legal action. The outcome of this lawsuit will determine the potential repercussions for the accused individuals and the company as a whole. As the legal process unfolds, the cryptocurrency community awaits answers regarding the integrity and transparency of one of the industry’s most prominent players.
