According to a report by Bloomberg, Coinbase CEO Brian Armstrong, board member Marc Andreessen, and other officers are being accused of using inside information to avoid more than $1 billion in losses by selling stock within days of the cryptocurrency platform’s public listing two years ago.
The lawsuit, filed by an investor, alleges that the executives had knowledge of bad news that would eventually send the share price tumbling, and sold their shares before the news became public. The lawsuit claims that this constituted insider trading and is seeking damages on behalf of Coinbase investors.
Coinbase Insiders Accused Of Pocketing $1 Billion
Bloomberg reported that Coinbase’s board of directors allegedly used a direct listing instead of a traditional initial public offering (IPO) to sell off $2.9 billion in company stock before management revealed negative information that caused the company’s share price to plummet. The allegations were made in a lawsuit filed by an investor and unsealed on Monday in Delaware Chancery Court.
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The use of direct listings has become increasingly popular among tech companies in recent years, as it allows companies to bypass the traditional IPO process and sell shares directly to the public. However, the strategy has also been the subject of criticism, as it can limit the amount of information that is disclosed to investors prior to the sale of shares.
Furthermore, according to Bloomberg, the board of directors allegedly deployed the direct listing strategy to quickly sell off company stock before negative information was publicly disclosed. The investor alleges that Coinbase’s management later revealed “material, negative information” that destroyed market optimism, causing the company’s share price to decrease significantly.
CEO And Board Members Refute Allegations Of Insider Trading
Adam Grabski, an investor who held the company’s shares since April 2021, has claimed that the executives sold their shares within days of Coinbase’s public listing in 2019 before the company announced a significant decline in trading volume and revenue. This, he alleges, was insider trading and led to losses for investors who purchased shares after the executives had sold theirs.
According to the complaint, Armstrong sold $291.8 million of Coinbase stock as part of the direct listing, while Andreessen Horowitz, Andreessen’s venture capital firm, sold $118.6 million worth of the stock.
Grabski, alleges that within five weeks, the executives’ shares declined in value by over $1 billion, leading to a significant drop in Coinbase’s market capitalization.
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Coinbase has reportedly responded to the lawsuit in an email statement, where the exchange called the lawsuit “frivolous” and “meritless,” and claimed that the company is often the target of such litigation.
Overall, the lawsuit is seeking damages on behalf of investors who have suffered losses as a result of the alleged insider trading. The allegations, if proven true, could result in fines, criminal charges, and even imprisonment for the executives involved.
Featured image from Unsplash, chart from TradingView.com