Court Rejects Early Dismissal in Coinbase Stock Sale Lawsuit

The decision keeps alive claims against Coinbase Global Inc. executives and directors, including CEO Brian Armstrong and venture capitalist Marc Andreessen, tied to the company’s 2021 market debut.

Allegations Linked to Coinbase’s Direct Listing

The lawsuit, first filed in 2023, alleges that Coinbase insiders used nonpublic valuation information to sell stock during the firm’s direct listing, avoiding more than $1 billion in losses. According to the complaint, directors and executives sold more than $2.9 billion worth of shares around the listing, with Armstrong alone selling nearly $292 million.

Unlike a traditional IPO, Coinbase’s direct listing did not involve issuing new shares or imposing lockup periods, allowing existing shareholders to sell immediately. The plaintiff argues that this structure enabled insiders to exit positions they allegedly knew were overvalued.

Andreessen, a Coinbase board member since 2020, is accused of selling roughly $119 million in stock through his venture firm Andreessen Horowitz.

Judge Questions Independence of Internal Review

Delaware Chancery Court Judge Kathaleen St. J. McCormick denied a motion to dismiss that relied on the findings of a special litigation committee formed by Coinbase. While she noted that the committee’s report presents a strong defense and that the directors could ultimately prevail, she ruled that concerns over the independence of one committee member were enough to keep the case alive.

The judge pointed to extensive professional ties between committee member Gokul Rajaram and Andreessen’s firm, concluding that those relationships raise material questions about independence, even while acknowledging Rajaram’s good faith.

Committee Defends Stock Sales

The special litigation committee, which conducted a 10-month investigation, concluded that the allegations lacked merit and that executives did not rely on material nonpublic information when selling shares. It argued that Coinbase’s stock price is closely correlated with Bitcoin, making it difficult to attribute trades to insider knowledge.

The committee also said insiders sold only a small portion of their holdings and did so reluctantly, after the company and its advisers pushed for more share supply to ensure the direct listing could proceed.

Coinbase said it was disappointed by the ruling and remains committed to fighting what it described as meritless claims. Lawyers for Armstrong and Andreessen declined to comment.

Wider Tensions With Delaware Courts

The ruling comes amid growing criticism of Delaware’s business courts from prominent tech investors. Andreessen Horowitz has publicly questioned judicial bias against founders and has encouraged companies to reincorporate outside the state.

That stance mirrors Elon Musk’s decision to reincorporate Tesla Inc. in Texas after a separate dispute over executive compensation, fueling broader debate over corporate governance and shareholder rights.

For now, the Coinbase case moves forward, with the court signaling that governance concerns surrounding the direct listing deserve further examination before any final judgment is reached.

The information provided in this article is for educational purposes only and does not constitute financial, investment, or trading advice. Coindoo.com does not endorse or recommend any specific investment strategy or cryptocurrency. Always conduct your own research and consult with a licensed financial advisor before making any investment decisions.

The post Court Rejects Early Dismissal in Coinbase Stock Sale Lawsuit appeared first on Coindoo.