Lawsuit accuses Coinbase execs of insider trading and withholding negative information about the company

Lawsuit Accuses Coinbase of insider trading and withholding negative information about the CompanyLawsuit Accuses Coinbase of insider trading and withholding negative information about the Company

In this post:

  • A lawsuit filed by shareholders claimed that Coinbase management allegedly failed to disclose unfavorable information about the company’s operations during its 2021 initial public offering.
  • According to the lawsuit, individuals with insider knowledge at Coinbase allegedly sold shares on the market prior to the release of negative news, resulting in them earning millions of dollars.
  • In great detail, the suit revealed the confidential plan of the Coinbase board to go public, which was internally referred to as “Project Fall Fruits”.

A shareholder lawsuit filed in a Delaware state court alleges that Coinbase executives failed to disclose negative information about the company before it went public in April 2021. As a result, these insiders reportedly became richer by $1.09 billion.

The lawsuit, filed on behalf of all shareholders by investor Adam Grabski, names prominent investors Marc Andreessen and Fred Wilson and Coinbase CEO Brian Armstrong, and top management as defendants. Coinbase has dismissed the claims as “frivolous” and “meritless.”

“Project Fall Fruits” and the direct listing strategy

The lawsuit delves into the personal plan by Coinbase’s board to go public, internally dubbed “Project Fall Fruits.” Coinbase chose a direct listing of existing shares instead of a more common initial public offering (IPO), which would have involved issuing new shares and potentially diluting shareholder value. Additionally, an IPO typically requires a lockup period, preventing insiders from immediately selling their shares.

The direct listing approach allowed Coinbase executives and investors to sell pre-existing shares, directly benefiting them. Insiders allegedly sold their stock through a 10b5-1 trading plan, which automatically and frequently sells stock on a predetermined schedule. According to the lawsuit, these sales began on the first day of public trading.

According to the lawsuit: “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 based on and profiting from, such material, non-public information.”

Bad news allegedly withheld

The lawsuit claims that board members knew of two pieces of negative information that had not been made public:

#1: Coinbase’s revenue was under pressure as customers sought alternatives to the company’s transaction fees.

#2: The company planned a private sale of $1.25 billion in new convertible notes following the direct listing, diluting existing shareholders.

The lawsuit also alleges that the staged release of shares and negative information allowed Coinbase insiders to avoid $1.09 billion in losses as they sold $2.9 billion in shares.

Despite the lawsuit, Coinbase launched its international exchange today.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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