Shareholders have filed a class action lawsuit against Coinbase, accusing it of providing false information about the financial situation when placing shares on the Nasdaq stock exchange. The lawsuit was filed in the Northern District Court of California by the law firm Scott + Scott. The defendants include Coinbase CEO Brian Armstrong, Coinbase Legal Department Head Paul Grewal, and other senior executives.
Coinbase shareholder Donald Ramsey, acting as the main plaintiff, claims that before Coinbase entered the stock market, its executives made statements that had no reasonable grounds.
According to the lawsuit, the exchange provided investors with false information about its financial situation, and the trading platform system was unstable. Ramsey came to this conclusion after analyzing the statements filed by Coinbase with the US Securities and Exchange Commission (SEC), Coinbase press releases, analyst reports and other publicly available information about the exchange.
“During the placement of shares on the stock exchange, the Coinbase platform required a significant cash injection. In addition, Coinbase was subjected to technical service failures that occurred more and more often as the exchange’s services were scaled for a growing user base, ” the class action says.
When the public learned that the statements of Coinbase executives were at odds with reality, the value of Coinbase shares declined, the plaintiffs claim. Coinbase shares began trading on April 14 at $381, and by the time a complaint was filed against Coinbase, the value of its shares had fallen to $208.
Investors refer to the events of mid-May, when Coinbase announced the need to raise funds, announcing plans to raise $1.25 billion through the sale of convertible bonds. After that, Coinbase shares plummeted by almost 10% in two trading sessions, Ramsey added.
According to him, investors were surprised by the timing of the bond issue, since Coinbase became a publicly traded company in mid-April. Given that the exchange entered the stock market through a direct listing, which does not imply the issuance of new shares or raising capital, the exchange should not have needed cash. Therefore, the decision of Coinbase to issue bonds a month after the placement on the Nasdaq raised many questions among investors.
As for the technical problems mentioned in the lawsuit, on May 19, Coinbase users really encountered problems in service. This can be explained by the massive influx of bitcoins to the exchanges— traders tried to have time to sell them during the “bear market”. In this regard, many exchanges experienced overload. However, Ramsey is convinced thatsuch technical problems do not correspond to the statement of Coinbase that it is easy to buy and sell cryptocurrencies on this exchange.
Almost simultaneously, one more lawsuit was filed against Coinbase in the same court. The Northern District Court of California will also consider the case of misleading investors when conducting a lottery with rewards in DOGE.