Coinbase execs slapped with insider trading lawsuit as banks get spooked

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Crypto exchange Coinbase’s top executives, including chief exec Brian Armstrong and board member Marc Andreessen, participated in insider trading to avoid $1 billion in losses in the days after going public two years ago, Coinbase investors claimed in a lawsuit made public on Monday.

The board quickly sold $3 billion in stock before the firm’s management announced negative news that sent its price tumbling, the lawsuit claimed. Armstrong sold over $290 million of Coinbase stock in a direct listing; Andreessen’s venture capital firm Andreessen Horowitz shed nearly $120 million, it said.

One long-term investor involved in the legal battle claimed that, “Within five weeks, those shares declined in value by over $1 billion, and Coinbase’s market capitalization plummeted by more than $37 billion.”

Indeed, Coinbase executives have a long-standing tradition of dumping huge amounts of stock. At the end of March, Protos reported that execs have sold nine times more stock than they’ve bought in 2023 so far. As of March 23:

Since late December, company insiders sold over half a million shares worth over $26 million.
Only 57,000 shares (worth almost $2.6 million) have been bought.
Armstrong is by far the largest dumper among Coinbase executives, selling almost 300,000 shares worth nearly $18 million.

However, Coinbase has denied the claims made by investors in this latest lawsuit. “As the most popular and only publicly traded crypto exchange in the US, we are at times the target of frivolous litigation,” a Coinbase spokesperson wrote Bloomberg. “This is an example of one of those meritless claims.”

Coinbase insider trading sounds familiar

This isn’t the only legal headache Coinbase is currently facing — by a long shot — nor would it be the first time insider trading occurred at the firm. Ex-employee Ishan Wahi recently pled guilty to two counts of wire fraud, for tipping off his brother and friend about a cryptocurrency that would soon be listed on the exchange, resulting in the trio making a tidy profit.

What’s more, Coinbase received a Wells Notice from the Securities and Exchange Commission (SEC) in March, warning that the firm was likely selling unregistered securities and therefore violating federal law. Coinbase responded, “We do not relish litigation against the SEC, but we will vigorously defend ourselves.”

The firm sued the SEC the following month over an administrative matter.

As US regulatory concerns mount for Coinbase, it has sparked initiatives to focus abroad on jurisdictions friendlier to the crypto industry. On Tuesday, Coinbase announced an offshore crypto derivatives exchange in Bermuda. Meanwhile, US banks are getting spooked by the scrutiny — Wall Street bank Citi cut the rating of Coinbase stock from buy to neutral on Monday, and slashed its price target from $80 to $65.

“Coinbase’s notions of redomiciling outside of the US, the company’s public responses and now a formal suit against the [SEC] are indicative that the [Wells Notice’s] process has not (yet?) been productive,” analysts wrote.

“The failure of Signature Bank and whether it was crypto related along with other events of the past year are all fodder for the SEC.”

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