A Delaware judge has upheld a shareholder lawsuit accusing several Coinbase directors of insider trading, regardless that an internal investigation cleared the executives of wrongdoing.
The lawsuit, filed in 2023 by a Coinbase shareholder, alleges that company executives, including CEO Brian Armstrong and board member Marc Andreessen, used confidential information to avoid greater than $1 billion in losses by selling shares around the corporate's initial public offering in 2021. According to the grievance, insiders sold greater than $2.9 billion value of shares, with Armstrong personally dumping about $291.8 million.
On Friday, Delaware Chancery Court Judge Kathaleen St. J. McCormick denied a motion to dismiss the lawsuit after a special litigation committee formed by Coinbase conducted an investigation, Bloomberg Law reported. While the judge found that the committee's findings provided a robust defense for the administrators, she ruled that questions on a committee member's independence were enough to maintain the case alive, in response to the report.
At the guts of the claims is Coinbase's decision to go public via a direct listing slightly than a standard initial public offering (IPO). Unlike an IPO, the direct listing didn’t involve a lock-up period that will allow existing shareholders to sell immediately, nor the issuance of latest shares that would dilute ownership.
Andreessen is accused of selling $118 million value of Coinbase shares
Andreessen, who joined Coinbase's board in 2020, is accused of selling around $118.7 million in shares through his enterprise firm Andreessen Horowitz. The plaintiff claims the administrators knew Coinbase's valuation was inflated and sold shares to avoid subsequent losses.
Coinbase shares were sold by directors after listing. Source: Lawsuit
Coinbase and the defendants have denied the allegations, arguing that there isn’t any evidence that that they had or acted on material, nonpublic information. Coinbase reportedly told Bloomberg Law that it was “upset by the court’s decision” and vowed to proceed fighting the “baseless claims.”
The lawsuit was stayed last 12 months while the Special Litigation Committee conducted a 10-month review. The committee ultimately really helpful that the case be dismissed, concluding that the sales were limited and aimed primarily at providing sufficient liquidity for the direct listing. It also argued that Coinbase's share price closely tracked Bitcoin (BTC) movements, dismissing claims that the trades were driven by insider knowledge.
However, the shareholder questioned the committee's independence, citing previous business relationships between committee member Gokul Rajaram and Andreessen's company. McCormick agreed that these connections raised legitimate concerns but acknowledged there was no evidence of bad faith.
Cointelegraph reached out to Coinbase for comment but didn’t receive a response by publication time.
Coinbase faces recent insider trading allegations
Meanwhile, recent allegations of insider trading have emerged after crypto researchers claimed that certain traders could have benefited from advance knowledge of token listings on Coinbase. The claims suggest that blockchain data and technical signals could have been used to predict which assets the exchange planned to list, allowing some market participants to trade ahead of public announcements.
In response, Coinbase said it plans to regulate its token listing process in the approaching quarters to cut back information leaks and uneven access to market signals.
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