Coinbase Investor Lawsuit Accuses Execs of Using Inside Info

A Coinbase investor said company officials used inside information to avoid $1 billion in losses.

Investor Adam Grabski accused Coinbase CEO Brian Armstrong, board member Marc Andreessen and other officers of selling stock within days of the cryptocurrency platform’s public listing before its price fell on bad news, Bloomberg reported Monday (May 1), citing court documents.

Coinbase’s board used a direct listing rather than the more traditional initial public offering (IPO) and quickly sold off $2.9 billion in stock before management later revealed “material, negative information that destroyed market optimism from the company’s first quarterly earnings release forward,” according to the report.

Within weeks, those shares dropped in value by more than $1 billion, with the company’s market capitalization falling by more than $37 billion, the report stated.

Reached for comment by PYMNTS, a Coinbase spokesperson said the company — in its capacity as “the most popular and only publicly traded crypto exchange” in the country — has at times found itself dealing with “frivolous” lawsuits.

“This is an example of one of those meritless claims,” the spokesperson said.

This suit comes as Coinbase finds itself gearing up for the possibility of another legal battle, this one with U.S. regulators, although Armstrong has said the company would prefer to talk things out.

After receiving a Wells notice from the Securities and Exchange Commission (SEC), Armstrong said last week Coinbase is committed to working within the regulatory perimeter and wants the government to put forth a clear market structure for trading crypto securities.

“We’re going to work with multiple regulators to make this industry safe and trusted, and a Wells notice at this stage, when there is not a clear rulebook, is not constructive and it’s not good for America,” Armstrong said in a video at the time. “We are prepared to defend that position in court, but it doesn’t have to come to that. We welcome a true dialogue about a workable path forward for our industry.”

A victory by the SEC in its bid to regulate cryptocurrency could force Coinbase to “register parts of its business with regulators or delist many crypto tokens that regulators say are securities and therefore must comply with investor-protection rules.”

The company has posted four consecutive quarterly losses as declining crypto prices have cut into its revenue and led to a drop in trading volumes. Coinbase is scheduled to report its latest earnings Thursday (May 4).

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