A Delaware judge has allowed a shareholder lawsuit accusing several Coinbase directors of insider trading to move forward, despite an internal investigation that cleared the executives of wrongdoing.
The case, filed by a Coinbase shareholder in 2023, claims that company directors—including CEO Brian Armstrong and board member Marc Andreessen—used confidential information to avoid over $1 billion in potential losses by selling shares around Coinbase’s public debut in 2021. According to the complaint, insiders sold more than $2.9 billion in stock, with Armstrong personally offloading roughly $291.8 million.
On Friday, Delaware Chancery Court Judge Kathaleen St. J. McCormick denied a motion to dismiss the lawsuit, which followed a probe by a special litigation committee set up by Coinbase, Bloomberg Law reported. While the judge acknowledged that the committee’s findings provide a strong defense for the directors, she ruled that concerns over the independence of one committee member were sufficient to let the case proceed.
The lawsuit centers on Coinbase’s decision to go public via a direct listing rather than a traditional initial public offering (IPO). Unlike an IPO, the direct listing had no lockup period, allowing existing shareholders to sell immediately, and did not issue new shares that could dilute ownership.
Andreessen, who joined Coinbase’s board in 2020, is specifically accused of selling about $118.7 million in shares through his venture firm, Andreessen Horowitz. The plaintiff alleges that the directors were aware that Coinbase’s valuation was inflated and sold stock to avoid future losses.
Coinbase and the defendants have denied the allegations, arguing there is no evidence they possessed or acted on material nonpublic information. The company told Bloomberg Law that it was “disappointed by the court’s decision” and intends to continue challenging the “meritless claims.”
The lawsuit was previously paused while a special litigation committee conducted a 10-month review. The committee ultimately recommended ending the case, concluding that the stock sales were limited and primarily intended to provide liquidity for the direct listing. It also noted that Coinbase’s share price closely mirrored Bitcoin (BTC) movements, countering claims that the trades were driven by insider knowledge.
However, the shareholder questioned the committee’s independence, citing prior business ties between committee member Gokul Rajaram and Andreessen’s firm. Judge McCormick ruled that these connections raised legitimate concerns, though she emphasized there was no evidence of bad faith.
New insider trading allegations emerge
Separately, fresh allegations of insider trading have arisen after crypto researchers suggested some traders may have profited from early knowledge of token listings on Coinbase. According to the claims, blockchain data and technical signals could have been used to anticipate which assets the exchange was preparing to list, enabling certain participants to trade ahead of public announcements.
In response, Coinbase said it plans to revise its token listing procedures over the coming quarters to limit information leaks and prevent uneven access to market signals.
