In brief
- A new Delaware lawsuit says Coinbase leaders hid compliance failures and data-breach risks while insiders sold $4.2 billion in stock at inflated prices.
- Plaintiffs claim executives knew of probes and security issues long before they became public.
- Shareholders seek billions and board seats as Coinbase moves its corporate home from Delaware to Texas.
A group of Coinbase stockholders has filed a lawsuit against the company’s leadership over an alleged yearslong scheme involving the insider trading of billions of dollars worth of company stock.
The Delaware-filed suit accuses Coinbase’s top executives and investors of suppressing information for years regarding the company’s failures to implement Know Your Customer (KYC) and anti-money laundering regulations, its vulnerability to data breaches, and the degree to which regulators were investigating these issues.
During the period in which this information was allegedly withheld from investors, Coinbase insiders, including CEO Brian Armstrong and board member Marc Andreessen, sold $4.2 billion worth of stock in the company. The plaintiffs allege these proceeds constitute “lucrative insider trading” that took advantage of the “artificially inflated price” of Coinbase stock.
America’s top crypto exchange has previously been sued on similar grounds. Last year, a Delaware judge ruled that the core claims of a 2023 investor-backed lawsuit—one which claimed Coinbase’s top brass unloaded stock while withholding material public information —were “reasonably conceivable.” The case is currently moving slowly through Delaware’s court system.
The new shareholder lawsuit, which was publicly filed just before Thanksgiving, focuses on Coinbase’s alleged internal awareness of issues that later caused the company’s stock price to fall.
In early 2023, for instance, Coinbase reached a $100 million settlement with the New York Department of Financial Services for “significant failures” in its anti-fraud and anti-money laundering practices. The lawsuit claims that for years, while Coinbase’s leadership knew the company was being investigated for such failures, it continued to make false and misleading statements about the exchange’s safety and legal compliance.
In another example, the suit claims Coinbase insiders were aware as early as January of this year that hackers had acquired sensitive personal information about exchange customers by targeting third-party customer service providers. The data breach was not disclosed until months later, in May.
“Such material misrepresentations and omissions were committed knowingly or recklessly and for the purpose and effect of artificially inflating the price of Coinbase’s securities,” the plaintiffs allege.
The Coinbase shareholders are seeking not just multi-billion dollar damages, but also seats on the company’s board of directors, as well as greater input on the board’s policies and guidelines.
Coinbase did not immediately respond to a request for comment on this story.
Last month, the company announced plans to relocate from Delaware to crypto-friendly Texas. In an op-ed explaining the decision, Coinbase chief legal officer Paul Grewal—another named defendant in the new lawsuit—cited Delaware’s court system as a key motivator for the company’s exit from the state.
“Delaware’s legal framework once provided companies with consistency,” Grewal said. “But no more. Delaware’s Chancery Court in recent years has been rife with unpredictable outcomes.”
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Source: https://decrypt.co/350490/coinbase-c-suite-andreessen-sued-billions-alleged-insider-trading
