Coinbase Execs Faces Insider Trading Lawsuit Despite Clearance

Coinbase is now dealing with renewed legal pressure as a shareholder lawsuit against its directors moves forward. A Delaware judge reportedly ruled that insider trading claims against top Coinbase leaders can move forward. 

This is despite an internal investigation that found no wrongdoing. The decision keeps the case alive and adds to wider debates around transparency and governance in the crypto industry.

Coinbase Shareholder Sues Board Over Insider Trading Claims

A Coinbase shareholder filed the lawsuit last year, accusing top board members of insider trading, including CEO Brian Armstrong. The shareholder claimed that the directors used private information to protect themselves from losses of more than $1 billion. 

According to the allegations, the directors sold large amounts of Coinbase shares before the company went public. The total value of the shares sold allegedly exceeded $2.9 billion. Armstrong, alone, was accused of selling shares worth nearly $300 million.

The lawsuit focuses strongly on Coinbase’s decision to go public through a direct listing rather than a traditional initial public offering. In a direct listing, existing shareholders can sell their shares immediately. 

Unlike an initial public offering, there is no lock-up period that prevents early investors and executives from selling their shares for a set time. In addition, Coinbase did not issue new shares during the listing. 

This meant there was no dilution of existing shares. This allegedly allowed current shareholders full freedom to sell their holdings once trading began. The plaintiff argued that this structure created an unfair advantage for insiders.

Coinbase Directors Reject Insider Trading Allegations

Coinbase’s directors have denied all allegations of insider trading. Their legal team has argued that the shareholder failed to show that the directors had access to important non-public information. 

They also stated that the plaintiff could not prove that such information influenced the decision to sell shares. Coinbase paused the lawsuit while a special litigation committee reviewed the claims.

After ten months of investigation, the committee advised the court to dismiss the case. It was concluded that the evidence did not support claims of insider trading. Most importantly, the company directors did not rely on confidential information when selling their shares.

Committee Says Share Sales Were Not Based on Insider Information

Furthermore, the committee also pointed out that Coinbase’s stock (COIN) price closely follows the price of Bitcoin (BTC). As a result of this strong link, it argued that trading decisions could not rely on secret company information in a meaningful way. 

The committee further stated that the directors sold shares to help increase supply and support the success of the direct listing. Legal representatives involved in the case noted that many of the largest shareholders initially hesitated to sell. 

Several directors remained optimistic about Coinbase’s future. They only joined the sale after internal discussions encouraged wider participation.

Insider trading remains a sensitive topic across the crypto sector. Other platforms, including prediction markets like Polymarket, have also faced public scrutiny over similar concerns.