A Coinbase shareholder launched a class-action against the company. Alongside Coinbase itself, the class action names the CEO, and other top executives as defendants.
A Coinbase shareholder has launched a securities class-action lawsuit against the firm for allegedly deceiving investors about the company’s financial state and resiliency as a crypto trading platform prior to its public listing.
On Thursday, law firm Scott + Scott filed a class-action lawsuit in California Northern District Court, naming Coinbase shareholder Donald Ramsey as a plaintiff, both individually and on behalf of all other investors in a similar situation.
Ramsey is pursuing his claims under the Securities Act of 1933, and he has submitted evidence from Coinbase’s regulatory filings with the Securities and Exchange Commission (SEC), company press releases, analyst reports, and other publicly available information regarding the exchange.
The class action also names CEO Brian Armstrong, CLO Paul Grewal, and other key officials, as well as several of the company’s venture capital supporters, as defendants.
Ramsey alleges Coinbase and its officials of making “materially deceptive statements” in their public offering documents and making optimistic statements that “lacked a reasonable foundation.” According to the class-action lawsuit,
“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.”
Ramsey further claims that once the purported inconsistencies between self-presentation and reality were made public, Coinbase’s stock price plummeted.
Ramsey points to events in mid-May when Coinbase admitted it needed to seek capital and announced intentions to raise $1.25 billion through a convertible bond issue. The company’s price dropped over 10% in two trading days, according to Ramsey.
The class-action lawsuit uses evidence from recent media stories, citing a Forbes piece on the bond sale announcement in mid-May:
“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 troubles on May 19, when a rush of traders looking to “get their money out” amid a bearish phase in the crypto markets suffered “delays […] due to network congestion.”
Users on both Coinbase and Binance faced delays in withdrawals of Ether (ETH) and ERC-20 tokens on that day, ostensibly owing to congestion on the Ethereum network.
The Gemini exchange also declared that it would be performing emergency maintenance to address persistent concerns, without specifying why.
According to the class action, these kinds of service-level technical failures is important and harmful to the company’s claims of being the easiest place to purchase and trade crypto in the retail market.
Given that the corporation relies on transaction fees for “nearly all of its revenues,” the complaint highlights this even more.
Coinbase stock was selling at $208 per share when Ramsey filed the class action, down from $381 when it opened on April 14.
As of Thursday, the defendants’ attorneys had not yet appeared. Coinbase representatives have been contacted for comment, and this post will be updated accordingly.
