Coinbase, one of the largest cryptocurrency exchanges in the U.S., is facing a shareholder lawsuit alleging it misled investors about its risk of bankruptcy and violated securities laws. The complaint, filed on Feb. 18 in a New Jersey federal court by Coinbase shareholder Wenduo Guo, claims the company failed to disclose crucial financial risks, including the possibility that customer assets could be considered part of Coinbase’s bankruptcy estate.
Allegations Against Coinbase Executives
The lawsuit accuses Coinbase executives, including CEO Brian Armstrong, of withholding information from investors regarding the risks customers faced in the event of insolvency. The complaint argues that prior to Coinbase’s public listing in April 2021, at least 75 crypto exchanges had collapsed, leaving customers unable to recover their assets—a historical precedent that Coinbase allegedly did not adequately disclose.
Additionally, the suit claims Coinbase engaged in proprietary trading to offset losses from declining crypto prices. This controversial practice, where a company trades assets using its own funds rather than client assets, is considered high-risk and was allegedly not properly communicated to investors.
SEC Lawsuit and Insider Trading Allegations
The lawsuit also references the U.S. Securities and Exchange Commission’s (SEC) June 2023 lawsuit against Coinbase, which accused the exchange of listing unregistered securities and failing to register with the agency. Furthermore, Guo’s lawsuit alleges that several top executives, including Armstrong, sold millions in stock, profiting personally while shareholders suffered losses due to regulatory challenges, lawsuits, and reputational damage.
Legal and Financial Implications
The complaint demands a jury trial and seeks damages, as well as corporate governance reforms to prevent similar misconduct. Named in the suit are several key Coinbase figures, including co-founder Fred Ehrsam, CFO Alesia Haas, COO Emilie Choi, and legal chief Paul Grewal, along with board members such as Mark Andreessen and Tobias Lütke.
Also Read: SEC’s Crypto Enforcement Faces Uncertainty as Legal Battles with Coinbase, Binance, and Ripple Pause
Meanwhile, Coinbase is also facing a separate class-action lawsuit in New York for allegedly selling securities without proper registration as a broker-dealer. With legal troubles mounting, the company’s regulatory battles could have significant implications for its future operations and investor confidence.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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