What Happened
Coinbase and nine of its executives allegedly breached fiduciary duties, violated the securities act, and issued false and misleading statements concerning its direct listing, according to a shareholder complaint filed on Aug 4.The executives’ names in the lawsuit include CEO Brian Armstrong, CFO Alesia Haas, and board member and a16z co-founder Marc Andreessen.
The complaint alleges that Coinbase “negligently prepared” its registration statement, which contained untrue statements of material fact as a result.
Of particular issue to the plaintiff was Coinbase’s “flywheel” growth strategy, described by the company as one where liquidity from its growing user base would provide for the listing of new assets, which would in turn attract more users.
The plaintiff said this flywheel strategy was ruptured by several service disruptions and delays in adding new crypto assets.
Still, the complaint only names five “unanticipated system disruptions” that took place in Q1 2021 before Coinbase went public, with other disruptions having allegedly taken place in 2019 and 2020.
The complaint also points to Dogecoin’s absence from the platform despite the “wild popularity and demand” for it as one of the reasons for its ruptured growth strategy.
Coinbase has lost out on a considerable amount of trading volume to other exchanges following a decline in cryptocurrency prices. Mizuho analyst Dan Dolev cut the stock’s price target last month after seeing a decline in market share of trading volume from 5.3 percent in Q1 to 2.9 percent in July.
The exchange is also facing an SEC probe regarding an alleged “unregistered securities offering.”
