July 24, 2024
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Coinbase and its top executives face a securities class action lawsuit over Nasdaq listing.

Coinbase and its top executives face a securities class action lawsuit over Nasdaq listing
Coinbase (Courtesy: Twitter)

The class action also names CEO Brian Armstrong, CLO Paul Grewal, several key officials, and many of Coinbase’s venture capital investors as defendants, in addition to Coinbase itself.

The Class-Action Lawsuit

A Coinbase shareholder has launched a securities class action lawsuit against the business. This is for allegedly deceiving investors about its financial position and resiliency as a crypto trading platform. The claims allege the deception is before its public listing.

On Thursday, legal firm Scott + Scott filed a class-action lawsuit in California’s Northern District Court. They named Coinbase shareholder Donald Ramsey as a plaintiff. This means both individually and on behalf of all other shareholders in a similar situation.

Ramsey is pursuing his claims under the Securities Act of 1933. Moreover, he has submitted evidence based on Coinbase’s regulatory filings with the Securities and Exchange Commission, company press releases, analyst reports, and other publicly available information regarding the exchange.

The Allegations

The class action also names CEO Brian Armstrong, Chief Legal Officer Paul Grewal, and other key officials, as well as some of the firm’s venture capital investors, as defendants, in addition to the company overall.

Coinbase and its officials are charged with giving “materially misleading statements”. The misleading statements in their offering paperwork at the time of the public listing. Moreover, the positive comments that “lacked a reasonable basis.”

The class action alleges that:

“At the time of the Offering: (1) the Company required a sizeable cash injection; (2) the Company’s platform was susceptible to service-level disruptions, which were increasingly likely to occur as the Company scaled its services to a larger user base.”

The Evidences

Ramsey further claims that after public disclosure of the apparent disparities between self-presentation and reality, Coinbase’s stock price plummeted. Ramsey pointed to events in mid-May when Coinbase admitted it needed to seek cash. Additionally, they revealed ambitions to raise $1.25 billion through a convertible bond offering. The company’s shares dropped about 10% in two trading days, according to Ramsey.

In mid-May, the class-action lawsuit marshals evidence from recent media stories. This includes a Forbes report on the bond sale official statement:

“Investors were also likely surprised by the timing of the issue, considering that Coinbase just went public in mid-April via a direct listing (which doesn’t involve issuing new shares or raising capital), signalling that it didn’t require cash. So the company’s decision to issue bonds a little over a month later is likely raising some questions.”

Ramsey’s class action also mentions the platform’s technical issues on May 19. This was when a slew of traders wanting to “get their money out” amid a negative period in the crypto markets faced “delays due to network congestion.”

Situations with Coinbase and Binance

Users on both Coinbase and Binance encountered delays in withdrawals of Ether (ETH) and ERC-20 tokens on that day. They purportedly own to congestion on the Ethereum network, as Coin Telegraph noted at the time. The Gemini exchange also declared that it would be doing emergency maintenance to address persistent difficulties without specifying why.

According to the class action, these kinds of service-level technical difficulties are significant and detrimental to the company’s claims of being the most accessible location to purchase and trade crypto in the retail market. Given that the firm relies on transaction fees for “nearly all of its revenues,” the lawsuit stresses further.

Coinbase’s shares were selling at $208 per share when Ramsey filed the class action, compared to its IPO price of $381 on April 14.