A stock-price drop is the subject of a class action wherein an investor alleges Coinbase and its leadership did not have the capital or certain operational capabilities they claimed to possess in the run-up to the company going public.
A May 2021 stock-price drop is the subject of a proposed class action wherein an investor alleges cryptocurrency exchange Coinbase and its leadership did not have the capital or certain operational capabilities it claimed to possess in the run-up to a resale of nearly 115 million Class A shares as the company went public.
The 25-page securities complaint says that Coinbase, only a month after representing in April 2020 that it had cash and cash equivalents of $1.1 billion and after positioning itself as a state-of-the-art platform equipped for the global exchange of crypto assets, conceded that it needed to raise capital while revealing “performance issues that prevented users’ ability to trade cryptocurrencies.” Upon this news, Coinbase’s share price fell nearly 10 percent over two consecutive trading sessions, injuring investors financially, the lawsuit says.
“By the commencement of this action, Coinbase stock traded as low as $208.00 per share, a significant decline from its April 14, 2021 opening price of $381.00 per share,” the lawsuit, filed July 22 in California, reads.
Central to the lawsuit is Coinbase’s resale of up to 114,850,769 shares of Class A common stock as the company went public on April 14. Coinbase, whose platform “powers the cryptoeconomy” and boasts roughly 43 million retail users, relayed in its April 14 prospectus on Form 424B4 with the SEC that the resale of its stock was “not underwritten by any investment bank,” and that registered stockholders would purportedly elect whether to sell their shares, the case says. Any sales, per the suit, would be represented on the Nasdaq, and Coinbase would purportedly not receive any proceeds from share sales of Class A common stock by registered shareholders, the complaint reads.
Summarizing, the lawsuit says Coinbase’s operations, including its liquidity and capital resources, would thus “continue to be financed with cash flow from operating activities and new proceeds from the sale of convertible preferred stock.” As of December 31, 2020, Coinbase had on hand cash and cash equivalents of $1.1 billion, the complaint says.
A month later, however, Coinbase’s “high-flying promise … came to a screaming halt” as the company, according to the lawsuit, conceded that it did, in fact, need to raise money, and revealed “performance issues” that stood in the way of users’ ability to trade cryptocurrencies. On May 17, Coinbase announced its plan to raise about $1.25 billion via a convertible bond sale before revealing two days later that technical issues, including “network congestion,” were affecting some who sought to get their money out, the complaint says.
Overall, Coinbase’s IPO materials were “false and misleading” in that the company failed to state at the time of its emergence as a public company that it required a sizeable cash injection and that its platform was susceptible to service-level disruptions “increasingly likely to occur” as operations were scaled to a larger user base.
“At the time of the Offering, Coinbase knew of, or in the exercise of reasonable care should have known, that it had insufficient cash and, further, that the continued growth of the Coinbase platform exposed it to service-level technical issues that disrupted user’s [sic] ability to sell or buy cryptocurrencies during particularly volatile times and, as a result, the Company’s ability to generate revenue through transaction fees,” the lawsuit says.
The case looks to represent all persons and entities who bought or otherwise acquired Coinbase common stock pursuant and/or traceable to its April 14, 2021 offering materials.
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