Coinbase cryptocurrency exchange is being sued for insider trading
Coinbase executives accused of $3 billion in insider trading to avoid $1 billion in losses
Executives and investors at the world's second-largest crypto exchange are accused of selling $2.9 billion worth of stock before negative information was published, affecting the collapse in quotes
The head of Coinbase, the world's second-largest crypto exchange, Brian Armstrong, along with its board member Mark Andriessen and other company officials avoided more than $1 billion in losses by using insider information, according to a lawsuit filed by one of the company's investors.
He estimated that they sold Coinbase (COIN) stock within days of the cryptocurrency platform's public offering two years ago, knowing of "bad news" that would affect a further collapse in quotations.
The company's board of directors conducted a so-called direct listing instead of a typical initial public offering and quickly sold off $2.9 billion worth of stock before Coinbase management disclosed "material negative information that negated the market's optimistic outlook after the company's first quarterly earnings report," according to a complaint filed in Delaware state court.
"In five weeks, the value of these shares fell by more than $1 billion, and Coinbase's market capitalization fell by more than $37 billion," claims Adam Grabski, speaking on behalf of investors. He says he has held Coinbase stock since April 2021.
"As the most popular and only publicly traded cryptocurrency exchange in the U.S., we are sometimes the subject of bizarre litigation," Coinbase officials wrote in a commentary for Bloomberg. - This is just such an example."
The lawsuit lists the main beneficiaries of the stock sale, including Andreessen Horowitz Group (sold $118.6 million worth of stock), CEO Brian Armstrong (sold for $291.9 million), COO Emily Choi (sold for $223.9 million), co-founder and board member Fred Ersam (sold for $219.4 million) and others.
Union Square Ventures, an investment firm owned by Fred Ersam, sold $1.8 billion worth of stock. According to the lawsuit, the company led a Series A funding round for Coinbase, investing $5 million at 20 cents a share, valuing the company at about $20 million. The stock sale was "the largest exit the firm has ever had," Grabski claims.