Coinbase executives saved $1B by dumping stocks ahead of bad news, a lawsuit alleges

Coinbase investor Adam Grabski filed a lawsuit in the Delaware Chancery Court on May 1 claiming that certain Coinbase executives and board members used inside information to avoid losses from Coinbase stock sales, Bloomberg reported.

The lawsuit named Coinbase Chairman and CEO Brian Armstrong, board member Marc Andreessen, and other executives as those profiting from selling Coinbase shares using insider information. The suit alleges that these executives avoided losses of around $1 billion by selling Coinbase shares within days of the firm’s public listing in April 2021.

Securities filings show that Armstrong sold $291.8 million worth of Coinbase shares within one month of the firm going public. Emelie Choi, the chief operating officer of Coinbase, and Alesia Haas, the chief financial officer, separately sold $219.7 million and $99.3 million, respectively, during the same time. Jennifer Jones, the chief accounting officer at Coinbase sold stocks worth $43.4 million.

Additionally, Andreessen sold $118.7 million worth of Coinbase shares, while Fred Ehrsam, who left Coinbase in 2017 but still owned stocks, sold $219.5 million worth of shares. Surojit Chatterjee, the former chief product officer at Coinbase, sold $61.9 million worth of stocks. Kathryn Haus, a board member, liquidated $73.5 million worth of Coinbase shares.

The biggest stock sale was carried out by Fred Wilson, a Coinbase investor who held over 7% of stock prior to the direct listing two years ago. Wilson unloaded Coinbase stocks worth $1.8 billion. All of these stocks, collectively valued at over $2.9 billion, were sold within a month of Coinbase’s direct listing.

The lawsuit alleges that these executives sold off their stock before the management revealed “material, negative information that destroyed market optimism from the company’s first quarterly earnings release forward.”

In other words, the lawsuit alleges that the named executives knew there was bad news coming and sold their stocks ahead of the news going public to avoid losses.

Plaintiff Grabski added in his complaint:

“Within five weeks, those shares declined in value by over $1 billion, and Coinbase’s market capitalization plummeted by more than $37 billion.”

Grabski has held Coinbase shares since April 2021. The shares had received an initial reference price of $250 per share but by the end of the first trading day, Coinbase shares were trading at over $320. Since then, Coinbase shares have gone downhill, especially since last year. Currently, Coinbase shares are down 85% from the day it went public, trading at around $50.

In an email to Bloomberg, Coinbase dismissed this lawsuit as one of the many “frivolous” suits it receives and said it is an  “example of one of those meritless claims.”