A Delaware judge has allowed an insider trading lawsuit against Coinbase Global (NASDAQ: COIN) directors to proceed, keeping alive claims tied to the company’s 2021 public debut.
The decision follows an internal investigation that cleared the defendants, according to Bloomberg News on Friday.
However, the court rejected a bid to dismiss the case based on that review. An investor filed the suit in 2023, alleging directors traded on confidential information during the listing. The complaint claims the defendants avoided more than USD$1 billion in losses.
It also alleges insiders sold as much as USD$2.9 billion in shares when trading opened.
Those named include Coinbase chief executive Brian Armstrong and venture capitalist Marc Andreessen. According to Bloomberg, the judge questioned the independence of one committee member. Consequently, she declined to defer to the committee’s findings at this stage. However, the ruling suggested the defendants could still prevail later. The judge said the report presents a strong narrative supporting their position. The dispute centers on Coinbase’s choice of a direct listing rather than an initial public offering. In a direct listing, companies do not raise new capital by issuing shares.
Additionally, the structure avoids dilution for existing holders. It also removes a lockup period that would restrict early investors from selling shares. Consequently, insiders could trade immediately once the stock opened. Attorneys for the directors deny any insider trading occurred. They argue the plaintiff has not shown the defendants possessed material nonpublic information. Furthermore, they say the complaint fails to link any information to the timing of sales.
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Tokenization could streamline financial markets
The company said it plans to continue contesting what it called meritless claims. Meanwhile, the lawsuit unfolds as Coinbase executives press a broader vision for digital assets. At the World Economic Forum in Davos, Armstrong joined a panel on tokenization.
He argued tokenization could streamline financial markets by speeding settlement. Additionally, he said it could reduce fees and widen access to investing. Armstrong pointed to a large global population without brokerage access. He described roughly four billion people as effectively “unbrokered.”
Accordingly, he framed tokenization as a way to reach those excluded investors. He also cited stablecoins as the clearest working example today. In his view, stablecoins show how tokenized assets can move across borders cheaply. Consequently, they demonstrate how participation could expand beyond traditional finance.
This isn’t the first time Coinbase has been in the hot seat for insider trading, either.
Coinbase was previously tied to one of the first criminal insider trading cases in the crypto sector. In 2022, U.S. prosecutors charged a former Coinbase product manager, along with his brother and a close associate. The case focused on advance knowledge of which digital tokens would be listed on the exchange.
Token listings often triggered sharp price jumps once public trading began. According to prosecutors, the employee tipped others before announcements. Consequently, the defendants allegedly bought tokens ahead of listings and sold them after prices rose.
Authorities said the scheme generated more than USD$1.5 million in profits. However, the charges avoided naming the activity as crypto insider trading outright. Instead, prosecutors used wire fraud and conspiracy statutes. They argued the case fit traditional market abuse principles.
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Crypto no stranger to insider trading
The case became notable for another reason. Prosecutors described several tokens as investment contracts. That framing implied the tokens could be treated like securities. Consequently, the case undercut claims that crypto markets exist outside securities law. Two defendants later pleaded guilty, while a jury convicted the former employee in 2023.
Meanwhile, FTX represents a different but related pattern of alleged informational abuse. FTX did not face a formal insider trading charge before its collapse. However, prosecutors accused executives of misusing internal knowledge. They alleged leaders knew about liquidity shortfalls while reassuring customers publicly. That gap between internal data and public messaging proved central.
Additionally, court filings showed certain insiders received special privileges. Those reportedly included faster withdrawals and looser risk controls. Regular users did not receive similar treatment. Consequently, prosecutors framed the conduct as fraud and conspiracy. The charges emphasized deception rather than market timing.
Former FTX executives have since pleaded guilty or been convicted. The cases painted a picture of internal information flowing unevenly. However, regulators again avoided the insider trading label. Instead, they relied on established fraud law.
That strategy allowed enforcement without resolving crypto’s securities status.
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