Coinbase Faces Lawsuit Alleging Insiders Withheld Information, Making Them $1 Billion Richer

Cointelegraph reported that Coinbase's executives and board members, including CEO Brian Armstrong and venture capitalists, have been accused of profiting from inside information during the company's public listing in a stockholder derivative complaint filed by a shareholder in the Delaware Court of Chancery.

The complaint alleges that the defendants were able to sell $2.9 billion worth of shares during the direct listing on Nasdaq, which they would not have been able to do if the company had gone public through an initial public offering. While the company's first quarter revenue rose 63% from the previous quarter, it still lagged behind the same period last year by 46%.

The lawsuit asserts that the defendants sold their shares without disclosing negative information that they possessed, which led to a more than 37% decline in the share price by May 18. This was due to the company's revenue margins being compressed during the first fiscal quarter and the release of a dilutive convertible offering.

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The suit alleges that the defendants had access to material non-public information about the company's well-being before their multi-billion-dollar liquidity event, which is not allowed under Delaware law. The defendants, who make up a majority of the board, sold $2.93 billion of stock before the price dropped, preventing a loss of over $1 billion. The lawsuit accuses them of breaching their fiduciary duty and demands damages, reimbursement of expenses, and the return of ill-gotten gains.

The suit names nine individuals, including the CEO, CFO, and board members. A Coinbase spokesperson called the lawsuit a meritless claim. It was filed on the same day as a class action suit concerning alleged violations of Illinois privacy laws.

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