Coinbase Sued By Shareholders For Allegedly Hiding Bankruptcy Risks And Breaking Securities Laws

Coinbase and several of its top executives are facing a shareholder lawsuit accusing them of misleading investors about the company’s bankruptcy risks and violating securities laws.

The complaint, filed on 18 February 2025 in a New Jersey federal court by shareholder Wenduo Guo, alleges that Coinbase failed to disclose key information regarding the treatment of customer assets in the event of bankruptcy.

The lawsuit claims that Coinbase’s leadership did not inform investors that customer assets could be included in the company’s bankruptcy estate, potentially leaving retail users as unsecured creditors.

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Coinbase Hid Risks Amid Wave of Crypto Exchange Collapses

Guo argues this omission put investors at risk, citing that 75 cryptocurrency exchanges had collapsed prior to Coinbase’s public listing in April 2021, leaving many customers unable to recover their funds.

“Despite repeated assurances from management, Coinbase carried similar risks of digital asset loss in the event of bankruptcy,” the complaint states.

In addition to the bankruptcy concerns, the lawsuit alleges Coinbase engaged in proprietary trading—a practice involving the company trading assets using its own capital to offset declining cryptocurrency prices.

Guo claims this risky strategy was not properly disclosed to investors, potentially inflating Coinbase’s financial performance.

The complaint also references the U.S. Securities and Exchange Commission’s (SEC) lawsuit against Coinbase filed in June 2023, which accused the company of listing unregistered securities and failing to register as a securities exchange.

COINBASE EXECS SUED OVER BANKRUPTCY RISKS & SECRET TRADING

Coinbase’s top execs are facing a shareholder lawsuit, accused of downplaying bankruptcy risks and engaging in risky proprietary trading.

The suit claims they misled investors by not disclosing that customer assets… pic.twitter.com/7EOswhDTIZ

— IBC Group Official (@ibcgroupio) February 19, 2025

Named defendants in the lawsuit include CEO Brian Armstrong, co-founder Fred Ehrsam, CFO Alesia Haas, COO Emilie Choi, Chief Legal Officer Paul Grewal, and several board members, including Fred Wilson, Mark Andreessen, Kelly Kramer, Gokul Rajaram, Tobias Lütke, and former board member Kathryn Haun.

The suit alleges that executives sold millions in stock, profiting personally while exposing investors to hidden risks.

Guo seeks damages and corporate governance reforms to prevent similar issues, demanding a jury trial to address the alleged misconduct.

The lawsuit adds to Coinbase’s mounting legal challenges, including an ongoing class-action lawsuit in New York accusing the company of selling unregistered securities without broker-dealer registration.

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Coinbase Reports Best Quarter in Over a Year

Coinbase has reported its strongest quarterly earnings in over a year, fueled by a surge in crypto trading activity following the election of U.S. President Donald Trump.

The company’s Q4 2024 financial results revealed a total revenue of $2.3 billion, an 88% increase quarter-over-quarter, far surpassing analyst expectations. Net income also saw significant growth, reaching $1.3 billion.

The crypto exchange’s trading volume soared to $439 billion, exceeding previous forecasts of $404 billion.

Retail and institutional investors contributed to the growth, with consumer transaction revenue surging 178% quarter-over-quarter to $1.35 billion and institutional revenue increasing by 155% to $141.3 million.

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