A shareholder lawsuit accusing senior figures at Coinbase of insider trading has been allowed to proceed by a Delaware judge, even after an internal investigation cleared the executives involved.
The case, originally filed in 2023, claims that several Coinbase directors used confidential information to avoid major losses by selling shares around the time of the company’s 2021 public debut. Among those named are CEO Brian Armstrong and board member Marc Andreessen. The complaint alleges insiders sold billions of dollars worth of stock, including nearly $292 million attributed to Armstrong personally. Andreessen is said to have sold roughly $118.7 million in Coinbase shares through his venture firm, Andreessen Horowitz.
On Friday, Delaware Chancery Court Judge Kathaleen St. J. McCormick declined to dismiss the lawsuit, according to reporting from Bloomberg Law. Coinbase had asked the court to throw out the case after a special litigation committee conducted an internal review and recommended ending it.
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While the judge noted that the committee’s findings could provide a strong defense for the directors, she said concerns about the independence of one committee member were enough to keep the case alive for now.
Focus on Coinbase’s Direct Listing
A key issue in the lawsuit is Coinbase’s decision to use a direct listing instead of a standard IPO. That route meant insiders were free to sell shares immediately, since there was no lockup, and no new shares were created that could water down ownership.
The plaintiff argues that directors were aware Coinbase’s valuation was inflated and chose to sell shares early to avoid later losses. Coinbase and the defendants deny the claims, saying there is no proof they acted on material nonpublic information. The company has described the allegations as lacking merit and said it plans to continue defending itself in court.
The case had been paused while Coinbase’s special litigation committee carried out a 10-month review. That committee concluded the share sales were limited and largely intended to provide liquidity during the direct listing process. It also argued Coinbase’s stock price closely tracked movements in Bitcoin, suggesting the trades were influenced by market conditions rather than insider knowledge.
However, the shareholder challenging the outcome pointed to prior business relationships between committee member Gokul Rajaram and Andreessen’s firm. Judge McCormick said those links raised valid questions about independence, though she did not accuse the committee of acting in bad faith.
New Insider Trading Questions Emerge
Separately, fresh concerns have surfaced around possible insider trading tied to token listings on Coinbase. Some crypto researchers say a few traders may have figured out which tokens Coinbase was getting ready to list by watching blockchain activity and other technical clues.
If that’s true, it could have given them a chance to buy those assets before the public announcements, and possibly benefit from the price spikes that often follow new listings. So far, these claims haven’t turned into legal cases, but they’re adding to wider questions about how information is handled at major crypto exchanges.
