Coinbase Insider Trading Lawsuit Survived Delaware Judge’s Dismissal Ruling

Key Insights:

• A Delaware judge kept a Coinbase insider trading lawsuit alive.
• The judge questioned a committee member’s independence after past business ties.
• The suit targeted 2021 direct-listing sales by Coinbase directors and officers.

A Delaware judge ruled that the Coinbase insider trading lawsuit could proceed. Delaware Chancery Court Judge Kathaleen St. J. McCormick issued the decision on Friday in Delaware. She denied a dismissal request after questioning committee independence, Bloomberg reported.

The ruling mattered because it kept legal pressure on Coinbase’s leadership. The Coinbase insider trading lawsuit challenged share sales tied to Coinbase’s 2021 listing. The case also tested how Delaware courts weighed board-led investigations, Bloomberg said.

Coinbase Direct Listing Put Trades Under A Microscope

The shareholder filed the derivative lawsuit in 2023, Bloomberg reported. The complaint alleged that directors used confidential information to avoid over $1 billion in losses. The plaintiff claimed insiders sold more than $2.9 billion of stock.

The complaint named Chief Executive Officer Brian Armstrong and board member Marc Andreessen, Bloomberg reported. The shareholder alleged Armstrong sold $291.8 million of shares. The filing also alleged Andreessen sold $118.7 million through Andreessen Horowitz.

The complaint centered on Coinbase’s choice of a direct listing, Bloomberg reported. The direct listing avoided issuing new shares and avoided dilution. It also avoided a lockup period that restricted immediate selling.

The Lawsuit Turned on Committee Independence

Coinbase formed a special litigation committee to investigate the claims, Bloomberg reported. The board appointed Kelly Kramer and Gokul Rajaram to serve. Bloomberg described Kramer as a former Cisco Systems chief financial officer.

The committee conducted a 10-month investigation and urged the court to terminate. The committee called the allegations “deficient” and against stockholder interests, Bloomberg reported. It also concluded defendants did not rely on confidential information.

McCormick rejected the dismissal request because of independence concerns, Bloomberg reported. She focused on business ties between Rajaram and Andreessen’s firm. She said those ties raised material disputes about Rajaram’s independence.

McCormick said no one questioned Rajaram’s good faith, Bloomberg reported. She still treated the “thick ties” as a problem for dismissal. The judge also said the report “paints a compelling narrative” supporting the defense.

Coinbase Insider Trading Lawsuit Faced a Strong Defense Record

Defense counsel denied insider trading and challenged the evidence, Bloomberg reported. They argued the plaintiff failed to show material nonpublic information. They also disputed any link between information and the timing of sales.

The committee argued Coinbase shares tracked Bitcoin’s price, Bloomberg reported. The committee wrote that correlation made conclusions about insider motives difficult. It said market moves explained the stock’s behavior during the period.

Counsel for the committee also framed the sales as liquidity support, Bloomberg reported. Attorney Brad Sorrels said defendants reluctantly sold to supply the listing. He said the two biggest stockholders stayed bullish about Coinbase.

A court filing said the company and its banker pleaded for supply, Bloomberg reported. The filing said Armstrong and an Andreessen Horowitz affiliate sold just over 1%. The filing described that amount as a sliver of total holdings.

The plaintiff attacked that narrative using prior business connections, Bloomberg Law reported. The filing cited a 2007 startup investment linked to Rajaram’s work. It also cited dozens of shared financing rounds since 2019.

The committee’s counsel called the interactions immaterial, Bloomberg reported. They pointed to a large universe of Andreessen Horowitz investments. They also said no evidence showed coordination in financing rounds.

What the Ruling Means for Coinbase Now?

The ruling left the case active and extended the legal overhang. The court did not decide whether insider trading occurred, Bloomberg reported. McCormick instead focused on committee independence for dismissal purposes.

Coinbase said it felt disappointed and planned to fight the claims, Bloomberg reported. A lawyer for Andreessen and Armstrong declined comment, Bloomberg said. Representatives for Andreessen Horowitz also did not immediately respond, Bloomberg reported.

McCormick’s opinion also referenced Delaware’s broader governance debate, Bloomberg reported. Andreessen Horowitz criticized Delaware’s business court in a July blog post. Bloomberg said the firm planned to reincorporate elsewhere and urged peers.

The Coinbase insider trading lawsuit has now moved forward under Delaware Chancery Court scrutiny. The next steps hinged on the court’s handling of the committee dispute. The case also kept focus on direct listings and insider-sale optics.