Insider trading lawsuit filed against Coinbase executives and board members

On May 2, 2023

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

Defendants in the lawsuit include CEO Brian Armstrong and prominent venture capitalists.

Millions of dollars in profit

On May 1, an investor in Coinbase stock, Adam Grabski, filed a lawsuit on behalf of all shareholders, naming Coinbase CEO Brian Armstrong, his management team, and prominent investors Marc Andreessen and Fred Wilson as defendants.

Fascinating lawsuit discusses Coinbase board’s confidential plan to go public two years ago> The process was given the internal nickname “Project Fall Fruits”.
The project was indeed, er, fruitful. Look who got rich:$COIN pic.twitter.com/FUGT2g5ZEx
— Jim Edwards (@Jim_Edwards) May 2, 2023

According to the lawsuit, Coinbase allegedly did not disclose unfavorable information about its business during its 2021 initial public offering. The suit further alleges that the company’s insiders sold their shares on the market just before the negative news was released, allowing them to profit millions of dollars.

Also outlined was that the company’s revenue margins were compressed during the first fiscal quarter, and a dilutive convertible offering was issued, causing the share price to drop by over 37% by May 18.

The suit alleges that the defendants had access to material non-public information about the company’s health before their liquidity event and that trading on this information is prohibited by Delaware law.

The suit also includes details about the confidential plan of the Coinbase board to go public, which was internally called “Project Fall Fruits.”

An IPO Alternative

The company made a debut on April 14 with an initial public offering (IPO), where new shares were issued to the public. At this time, Coinbase opted for a direct listing of its existing shares during its public debut.

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

This allowed them to directly benefit from any stock sales, as opposed to an initial public offering (IPO) in which new shares are typically issued.

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

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