Coinbase Inc.’s top executives have been sued for allegedly using inside information to sell their stock within days of the cryptocurrency platform’s public listing, avoiding over $1 billion in losses.
The largest U.S.-based crypto exchange was listed directly on Nasdaq in April 2021.
What is the Latest Lawsuit About?
The lawsuit filed by an investor names the exchange’s Chairman and CEO, Brian Armstrong, along with board member Marc Andreessen and other officers.
According to an investor named Adam Grabski, who has held shares in Coinbase since April 2021, the value of the shares declined by over $1 billion within five weeks after the alleged sale by Coinbase’s executives.
The lawsuit claims that the defendants sold the stock before Coinbase-related bad news caused them to crash. This reportedly caused the exchange’s market capitalization to fall by over $37 billion.
The complaint alleges that Armstrong sold $291.8 million worth of Coinbase stock during the direct listing, and Andreessen Horowitz sold $118.6 million. In an emailed statement, Bloomberg noted that the exchange had dismissed the claims as meritless.
Reports make clear that the investors claim the executives made money from the firm listing in a civil case.
Coinbase’s market cap surpassed $100 billion soon after its debut. Share prices soared to $429 before falling and hitting a low of about $310 shortly after the listing.
Prior to Coinbase management disclosing “material, negative information that destroyed market optimism from the company’s first quarterly earnings release forward,” the court record of the complaint highlights that executives quickly sold off $2.9 billion in stock following the listing.
Mounting Troubles for Coinbase
Coinbase became known for the ‘Coinbase Effect.’ This refers to certain crypto prices skyrocketing after being listed by the exchange. It faced criticism for this due to an alleged conflict of interest with Coinbase Ventures. The media accused Coinbase of using its venture-capital arm to benefit from the listing by significantly increasing its investments beforehand.
Meanwhile, the top exchange is also facing heat over privacy lapses. Bloomberg noted in a separate report that Coinbase is facing a proposed class-action lawsuit. The suit alleges that the cryptocurrency exchange illegally collects facial templates and fingerprints of its customers. The alleged privacy offense reportedly violates Illinois’ biometric privacy law. The lawsuit claims that Coinbase harvests facial data from copies of government-issued IDs and selfies that users must upload during the account sign-up process under its KYC norms.
The Securities and Exchange Commission (SEC) is also taking enforcement action against the American cryptocurrency exchange. On March 23, the company received the Wells Notice as the regulator intensified its campaign against cryptocurrencies.
During this time, Cathie Wood’s ARK Invest fund has purchased Coinbase stock worth $8.7 million as of last week’s filing with the SEC. At the time of writing, the stock price of the exchange is down 4%. COIN is trading for $49.58 per share in pre-market trading.
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