Coinbase and its Top Executives Face Class Action Lawsuit

A securities class action lawsuit has been filed by a Coinbase shareholder against the exchange for allegedly misleading its investors before its public listing regarding the financial state and resilience of the company as a crypto trading platform. The class action was filed on Thursday in the California Northern District Court by law firm Scott + Scott. The plaintiff is Donald Ramsey, a shareholder of Coinbase, both individually as well as on behalf of all other investors facing similar situations. 

Ramsey is using the United States Securities Act for pursuing his claims and has also presented evidence taken from regulatory filings of Coinbase with the US Securities and Exchange Commission, analyst reports, company press releases, and other information that’s publicly disclosed about the exchange. Other than the company itself, the CEO of the exchange, Brian Armstrong is also named in the class action, along with Paul Grewal, the chief legal officer. There are other top executives who are also defendants, in addition to a number of the exchange’s venture capital backers. 

Coinbase and its executives have been accused by Ramsey of making statements that are ‘materially misleading’ in their offering materials when the exchange was listed on Nasdaw. He has also accused them of making positive statements that lack a reasonable basis. According to the lawsuit, the company needed a sizeable cash injection at the time of the offering and the platform was also susceptible to disruptions that were likely to occur due to the larger user base being targeted. Ramsey also alleged that once the discrepancies had come to light, the exchange’s share price had gone down accordingly. He cited events of mid-May when the exchange had conceded that they needed to raise funds and had also announced plans of using a convertible-bond sale for raising $1.25 billion. 

Ramsey said that after this announcement, Coinbase’s stock had gone down by 10% in two trading sessions. The class action also highlights technical difficulties that occurred on the platform on May 19th, when delays were faced by a number of traders who were hoping to get their money out because the crypto markets were experiencing a bearish period. It had been reported that users of both Coinbase and Binance had faced delays in ERC-20 token and Ether (ETH) withdrawals because of congestion on the Ethereum network. The Gemini exchange hadn’t given a reason, but it had also announced that it would be performing emergency maintenance. 

According to the class-action lawsuit, such service-level technical issues are damaging for the claims of the company to be the easiest platform for buying and selling crypto in the retail space. The complaint highlights this, considering that the company is dependent on transaction fee for generating almost all its revenues. By the time the class action was commenced by Ramsey, Coinbase’s stock price had gone down from $381 on April 14th to $208. As of Thursday, counsel for the defendants had not yet made an appearance so it remains to be seen how things will turn out. 

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