Explosive Lawsuit: Did Coinbase CEO Brian Armstrong And Top Execs Profit From Insider Info?

A Coinbase COIN shareholder, Adam Grabski, has lodged a stockholder derivative complaint against some of the company's executives and board members, alleging that they profited from inside information during the company's public listing.

CEO Brian Armstrong and prominent venture capitalists are among those named as defendants.

A stockholder derivative complaint is a lawsuit brought against a company on behalf of its shareholders.

Grabski purchased Coinbase shares on the first day of the crypto exchange's public listing and filed the suit in the Delaware Court of Chancery on May 1, 2023.

The complaint, posted in a redacted version by the court, claims that the defendants sold $2.9 billion worth of Coinbase shares made available to the public via a direct listing of the company's stock on the Nasdaq exchange on April 14, 2021, and during the subsequent week.

Had the company opted for an initial public offering instead of a direct listing, the defendants would have been barred from selling their shares, and the value of their holdings would have been diluted.

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The suit accuses the defendants of selling their shares before revealing information they already possessed that negatively impacted the share price, which dropped by over 37% by May 18, 2021, after "the compression of the Company's revenue margins during the first fiscal quarter and the issuance of a dilutive convertible offering were publicly disclosed."

"Defendants had access to material, non-public information about the Company's health ahead of their multi-billion-dollar liquidity event. […] Delaware law, however, does not permit […] fiduciaries to trade on, and profit from, such material, non-public information," according to the suit.

The company lost over $37 billion in market value following the unfavorable disclosures.

Nonetheless, "Defendants, comprising a majority of the Board, sold $2.93 billion of stock" before the price decline, preventing a loss of over $1 billion for themselves.

The suit alleges a breach of fiduciary duty and unjust enrichment and seeks payment of damages to the company with interest, return of ill-gotten gains to the company, and reimbursement of the plaintiff for expenses.

Nine individuals are named in the suit, including Armstrong, former chief product officer Surojit Chatterjee, chief operating officer Emilie Choi, chief financial officer Alesia Hass, chief accounting officer Jennifer Jones, and board members Marc Andreessen, Frederick Ersham, Fred Wilson, and Kathryn Haun.

In an email response to Cointelegraph, a Coinbase spokesperson responded to the case, stating, "As the most popular and only publicly traded crypto exchange in the US, we are at times the target of frivolous litigation. This is an example of one of those meritless claims."

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