Delaware Court Allows Coinbase Insider Trading Lawsuit to Proceed

On Thursday, February 1, 2024, the Court of Chancery of Delaware denied motions to dismiss a derivative shareholder lawsuit filed against several directors and officers of cryptocurrency exchange Coinbase Global, Inc.

The suit, filed by Coinbase shareholder Adam Grabski, alleges that Coinbase directors Marc Andreessen, Brian Armstrong, Fred Ehrsam III, Kathryn Haun, and Fred Wilson, as well as officers Emilie Choi, Alesia Haas, Jennifer Jones, and Surojit Chatterjee improperly sold over $2.9 billion worth of Coinbase stock right before negative earnings news was announced in 2021.

Specifically, Grabski claims the defendants sold their Coinbase shares based on material non-public information about upcoming quarterly results and a capital raise, allowing them to avoid losses of over $1 billion when the stock price dropped significantly after the announcements. Grabski alleges this constituted a breach of fiduciary duty under Delaware law.

In its ruling, the Delaware Court of Chancery denied motions by the defendants to dismiss the lawsuit. Chancellor Kathaleen McCormick found that Grabski had sufficiently pleaded facts to establish the legal requirements that the company’s board of directors would not fairly consider the allegations, as well as stating a viable claim for breach of fiduciary duty.

Regarding the board, McCormick determined Grabski offered enough details to contend that at least half of the demand board members – Armstrong, Andreessen, Ehrsam, Haun, and Wilson – could not impartially consider the claims since they personally benefitted financially from the stock sales in question. The ruling also held Grabski adequately alleged these directors faced a substantial risk of liability.

While not ruling on the ultimate merits, McCormick wrote that applying well-established fiduciary principles, Grabski’s complaint met the pleading standards necessary to allow the lawsuit to proceed to the next stage of the litigation process. The decision means the case will now move forward with the defendants filing answers to dispute the claims, followed by the potential for further motions, discovery, and ultimately a trial.

Please contact BlockTribune for access to a copy of this filing.