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Coinbase (NASDAQ:COIN), a leading cryptocurrency exchange platform, and several of its top executives were named in a lawsuit alleging that they misled investors about the company’s bankruptcy risks and breached securities laws.
The legal action, initiated by shareholder Wenduo Guo, was filed in a federal court in New Jersey on February 18.
The complaint accuses Coinbase and its leadership, including CEO Brian Armstrong, of failing to reveal that in the event of bankruptcy, customer assets could be at risk of being included in the company’s estate, potentially leaving retail customers as unsecured creditors. It further alleges that before Coinbase went public in April 2021, the collapse of at least 75 cryptocurrency exchanges led to customers losing access to their digital assets, a risk that was not adequately communicated by Coinbase’s management.
In addition to these claims, the lawsuit contends that Coinbase engaged in proprietary trading as a means to offset falling cryptocurrency prices, a strategy described as risky because it involves the use of the company’s funds for asset trading.
The lawsuit also references the Securities and Exchange Commission’s (SEC) June 2023 lawsuit against Coinbase, which accused the exchange of listing unregistered securities and failing to properly register with the regulatory body.
The legal complaint goes on to allege that several Coinbase executives, including Armstrong, profited personally by selling millions of dollars worth of stock, leading to significant losses, regulatory penalties, and reputational harm for the company.
Guo is demanding a jury trial, seeking damages, and calling for corporate governance reforms to prevent future misconduct. Named in the suit are co-founder Fred Ehrsam, CFO Alesia Haas, COO Emilie Choi, legal chief Paul Grewal, accounting head 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 concurrently dealing with another class-action lawsuit in New York, where it is accused of selling securities without the necessary broker-dealer registration.
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