Coinbase under scrutiny: shareholder files Lawsuit alleging investor misleading and improper financial practices
Coinbase (NASDAQ:), a leading cryptocurrency exchange platform, has found itself in the spotlight—from both shareholders and regulatory authorities. On February 18, shareholder Wenduo Guo filed a lawsuit in a federal court in New Jersey, accusing the company and its top management of concealing critical information regarding bankruptcy risks and failing to comply with securities regulations.
Key allegations
According to the lawsuit, Coinbase, along with CEO Brian Armstrong and other key executives, failed to disclose that in the event of the company's bankruptcy, customer assets could be included in the bankruptcy estate, thereby exposing retail investors to the risk of becoming unsecured creditors. The suit also alleges that before Coinbase’s public debut in April 2021, the collapse of at least 75 cryptocurrency exchanges resulted in customers losing access to their digital assets—information that was supposed to be relayed to investors but, according to Guo, was not adequately communicated.
Risky financial strategies
The lawsuit further claims that Coinbase engaged in proprietary trading to counteract falling cryptocurrency prices. This practice, which involved using the company’s funds to trade assets, has been described as a high-risk strategy. Additionally, the suit references actions by the Securities and Exchange Commission (SEC), which in June 2023 filed a lawsuit against Coinbase for listing unregistered securities and failing to properly register with the regulatory body.
Personal gains at the expense of investors
The suit asserts that several company executives, including Brian Armstrong, personally profited by selling millions of dollars worth of stock. According to the allegations, these actions resulted in significant losses, regulatory penalties, and damage to Coinbase’s reputation.
Claims and demands
Wenduo Guo is demanding a trial by jury, seeking compensation for affected investors, and calling for reforms in corporate governance to prevent similar misconduct in the future. Among those named in the lawsuit are co-founder Fred Ehrsam, Chief Financial Officer Alesia Haas, Chief Operating Officer Emilie Choi, Head of Legal Paul Grewal, Chief Accounting Officer Jennifer Jones, and board members Fred Wilson, Mark Andreessen, Kelly Kramer, Gokul Rajaram, Tobias Lütke, as well as former board member Kathryn Haun.
Coinbase is facing not only the lawsuit filed by Guo but also another class-action lawsuit in New York, where the company is accused of selling securities without the required broker-dealer registration.