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Coinbase executives and board members face lawsuit for alleged insider trading

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A lawsuit filed in a state court in Delaware alleges that top Coinbase executives enriched themselves $1.09 billion by not disclosing negative information about the company prior to its April 2021 listing.

Among the defendants in the lawsuit are CEO Brian Armstrong and prominent venture capitalists.

Millions of dollars in profits

On May 1, Coinbase investor Adam Grabsky filed a lawsuit on behalf of all shareholders, naming Coinbase CEO Brian Armstrong, his management team, and high-profile investors Marc Andreessen and Fred Wilson as defendants.

According to the lawsuit, Coinbase allegedly did not disclose unfavorable information about its business during its 2021 IPO. The lawsuit further alleges that the company insiders sold their shares in the market just before the negative news, allowing them to profit from millions of dollars.

It was also explained that the company’s revenue margins had squeezed during the first fiscal quarter, and a diluted convertible offer was issued, causing the share price to drop more than 37% by May 18.

The lawsuit alleges that the defendants had access to material, non-public information about the company’s health prior to the liquidity event and that trading on such information is prohibited by Delaware law.

The lawsuit also includes details about the Coinbase board’s secret plan to go public, which was internally called “Project Fall Fruits.”

An alternative to going public

The company debuted on April 14 with an initial public offering (IPO), where new shares were issued to the public. At this time, Coinbase has chosen to directly list its existing shares during its public appearance.

According to the lawsuit, the primary advantage of the direct listing was that the shares being offered for public sale were pre-existing shares already owned by Coinbase executives and investors.

This allowed them to profit directly from any share sales, unlike an initial public offering (IPO) in which new shares are usually issued.

Coinbase denies all allegations in a statement to The Block, describing the lawsuit as “futile” and “frivolous.”

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