Several executives and board members of Coinbase have been named in a stockholder derivative lawsuit brought by a shareholder who claims they benefited from insider information prior to the company going public. Among the defendants are CEO Brian Armstrong and well-known venture funders.
Coinbase Executives and Board Members Sued
On May 1, Coinbase shareholder Adam Grabski brought the case before the Delaware Court of Chancery. On the first day of the cryptocurrency exchange’s public listing, Grabski purchased Coinbase shares. On the other hand, Jim Edwards shared a tweet about the issue on his Twitter.
The defendants were able to sell $2.9 billion worth of Coinbase shares made available to the public through a direct listing of the company’s stock on the Nasdaq exchange on April 14, 2021, and in the week that followed, according to a redacted version of the complaint issued by the court.
The defendants would not have been able to sell their shares, which would have decreased the value of their shareholdings if the company had conducted an IPO rather than listing straight on the exchange.
About Suit
According to the lawsuit, the defendants were able to sell their shares before disclosing information that had a negative impact on the share price and caused it to drop by more than 37% by May 18 after “the compression of the Company’s revenue margins during the first fiscal quarter and the issuance of a dilutive convertible offering were publicly disclosed.”
“Defendants were privy to material, non-public information about the health of the Company ahead of their multi-billion-dollar liquidity event. […] Delaware law does not permit, however […] fiduciaries trading on the basis of, and profiting from, such material, non-public information.”
The suit
The lawsuit alleges a violation of fiduciary responsibility and unjust enrichment. It seeks restitution of damages to the corporation with interest, the return of gains obtained unfairly, and payment of the plaintiff’s costs.
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