Coinbase Insiders Sued for Dumping Stock, Saving $1 Billion

The Coinbase logo on a laptop computer arranged in Hastings-on-Hudson, New York, U.S., on Tuesday, Jan. 5, 2021. Coinbase Inc. knew cryptocurrency XRP was a security rather than a commodity and "illegally" sold Ripple Labs Inc.'s tokens anyway, a customer argues in a proposed class-action lawsuit over the commissions the crypto exchange collected. Photographer: Tiffany Hagler-Geard/Bloomberg

(Bloomberg) -- Coinbase Inc. Chairman and Chief Executive Officer Brian Armstrong, board member Marc Andreessen and other officers avoided more than $1 billion in losses by using inside information to sell stock within days of the cryptocurrency platform's public listing two years ago, before bad news sent the share price tumbling, according to a lawsuit filed by an investor.

The company's board deployed a so-called direct listing instead of a more typical initial public offering and rapidly sold off $2.9 billion in stock before Coinbase management later revealed “material, negative information that destroyed market optimism from the company's first quarterly earnings release forward,” according to the complaint unsealed Monday in Delaware Chancery Court.

“Within five weeks, those shares declined in value by over $1 billion, and Coinbase's market capitalization plummeted by more than $37 billion,” claimed the investor, Adam Grabski, who said he's held Coinbase shares since April 2021.

Armstrong sold $291.8 million of Coinbase stock as part of the direct listing, according to the complaint, while Andreessen's venture capital firm, Andreessen Horowitz, dumped $118.6 million worth of the stock.

“As the most popular and only publicly traded crypto exchange in the US, we are at times the target of frivolous litigation,” Coinbase said in an emailed statement. “This is an example of one of those meritless claims.”

The so-called derivative complaint filed on the company's behalf seeks the return of “ill-gotten gains” from Armstrong and Andreessen, along with President Emilie Choi, Chief Financial Officer Alesia Hass, Chief Accounting Officer Jennifer Jones and former Chief Product Officer Surojit Chatterjee and board members Frederick Ersham, Fred Wilson and Kathryn Haun.

The case is Grabski derivatively on behalf of Coinbase Global Inc. v. Andreessen, Case No. 2023-0464-KSJM, Court of Chancery, State of Delaware.

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