Coinbase executives sued by shareholders, accused of misleading investors over company bankruptcy risks and violating securities laws

PANews reported on February 19 that Cointelegraph reported that Coinbase and several of its executives were sued by shareholders, accusing them of misleading investors about the risk of company bankruptcy and violating securities laws. Coinbase shareholder Wenduo Guo said in a lawsuit filed in a federal court in New Jersey that Coinbase and its leadership failed to disclose that client assets could be considered part of Coinbase’s bankrupt property, thus making retail clients unsecured creditors.

The lawsuit noted that at least 75 crypto exchanges went bankrupt before Coinbase went public in April 2021, leaving customers of those exchanges unable to recover their digital assets. “Despite repeated denials by the company’s management, Coinbase is not different in terms of the risk of loss of digital assets in the event of bankruptcy.” The lawsuit also claimed that Coinbase did not disclose its own transactions to compensate for the decline in cryptocurrency prices, which the lawsuit claimed was A "risk act of using company funds to trade assets."

Wenduo Guo's lawsuit also mentioned a lawsuit filed by the US SEC against Coinbase in June 2023, accusing the company of listing unregistered securities and not registering with the institution. The lawsuit alleges that several executives, including CEO Brian Armstrong, sold millions of shares and made hundreds of millions of dollars in personal profits. Wenduo Guo claims that these actions have caused huge losses, regulatory penalties, litigation and reputational damage to Coinbase. The lawsuit calls for a jury trial and seeks compensation and corporate governance reforms to prevent similar misconduct from happening again.