A Delaware judge ruled Friday that a shareholder lawsuit alleging insider trading by Coinbase directors can proceed, rejecting a special committee’s recommendation to dismiss the case despite its 10-month investigation clearing the defendants. The decision affects several high-profile directors, including venture capitalist Marc Andreessen and CEO Brian Armstrong, who collectively sold over $2.9 billion in stock during the company’s April 2021 direct listing. According to Bloomberg Law , Judge Kathaleen St. J. McCormick allowed the case to proceed due to conflicts involving one committee member, though she acknowledged the internal investigation “ paints a compelling narrative ” in support of the directors’ defense. The lawsuit , filed in 2023 by shareholder Adam Grabski, claims directors used confidential valuation information to avoid more than $1 billion in losses by selling shares when Coinbase went public without traditional lockup restrictions. Source: Court Filing Independence Concerns Undermine Internal Review The special litigation committee comprised two Coinbase board members: Kelly Kramer, former chief financial officer of Cisco Systems, and Gokul Rajaram, a Silicon Valley angel investor. Neither was named as a defendant nor sold shares in the direct listing. However, McCormick identified substantial business ties between Rajaram and Andreessen Horowitz as disqualifying conflicts of interest. According to court filings, interactions included a 2007 investment by Andreessen in a startup co-founded by Rajaram, and at least 50 financing rounds in which Rajaram or his venture firm participated alongside Andreessen Horowitz since 2019. “ No one—not plaintiff and thus not the court—questions Rajaram’s good faith, ” McCormick wrote. “ But the thick ties between him and the subject of the SLC’s investigation are sufficient to raise material disputes regarding his independence. “ Attorneys for the committee argued that the business interactions were “ immaterial ,” given the 700 total investments, and noted that there was no evidence of coordination in financing rounds. “ These are not close personal ties. These are professional ones, ” said Brad Sorrels, representing the committee, during an October hearing. Direct Listing Structure Enabled Immediate Sales The shareholder complaint centers on Coinbase’s unconventional path to public markets through a direct listing rather than a traditional IPO. Source: Court Filing This structure allowed existing shareholders to sell immediately without the lockup periods typically imposed by underwriters to prevent insider trading on material nonpublic information. Armstrong sold $291.8 million in shares, according to the complaint, while Andreessen Horowitz divested $118.7 million through the direct listing. Other defendants included Chief Operating Officer Emilie Choi, who sold $224 million, and co-founder Fred Ehrsam, who sold $219.5 million. The lawsuit alleges that directors knew the shares were overvalued, based on an internal Andersen Tax valuation that was substantially below market expectations when trading began at $381 per share. Within five weeks of the April 14, 2021 listing, Coinbase shares declined by more than 37% as the company disclosed fee compression affecting retail revenues and announced a dilutive convertible note offering. By May 18, 2021, the stock had wiped out just over $37 billion in value, according to the complaint. Company Disputes Claims Amid Delaware Criticism “ We are disappointed by the court’s decision and remain committed to fighting these meritless claims in court, ” Coinbase said in a statement. The committee’s report concluded that the defendants didn’t rely on confidential information, noting that Coinbase stock is “ highly correlated ” with Bitcoin prices, making it impossible to prove insider trading allegations. The committee argued directors “ reluctantly ” sold stock to provide sufficient supply for the direct listing, divesting only small portions of their holdings. “ The evidence roundly showed that defendants, including the two biggest stockholders, didn’t want to sell because they were bullish about the company, ” Sorrels said during the October hearing. Armstrong and Andreessen Horowitz “ ultimately agreed to sell just over 1% of their respective shares only after the company and its banker pleaded with them to provide supply necessary for the direct listing to launch, ” according to committee filings. Andreessen Horowitz has publicly criticized Delaware’s business courts, announcing plans last July to reincorporate portfolio companies elsewhere due to perceived bias “ against founders and their boards. “ Coinbase has announced plans to leave Delaware and reincorporate in Texas, a move Chief Legal Officer Paul Grewal described as a strategic decision to align with the company’s long-term vision for new product development and regulatory efficiency.“Toda… https://t.co/aELNKkSwDu — Cryptonews.com (@cryptonews) November 12, 2025 Coinbase announced its own reincorporation plans on November 12 , following similar moves by other major companies seeking to exit Delaware’s jurisdiction. Beyond civil litigation, Coinbase faced a similar, but criminal insider trading case in 2023, when former product manager Ishan Wahi received a two-year prison sentence for sharing confidential listing information with family members who profited from the advanced knowledge. 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