Coinbase Executives Face Shareholder Lawsuit over Compliance Failures

A Coinbase shareholder filed a derivative lawsuit against several of the crypto exchange’s top executives and board members, accusing them of failing to oversee compliance and disclosures and exposing the company to legal and regulatory fallout.

The complaint was filed Tuesday in the US District Court for the District of New Jersey and was brought by shareholder Kevin Meehan on behalf of Coinbase Global. It names CEO Brian Armstrong, co-founder Fred Ehrsam, and several current and former directors and senior executives, including chief legal officer Paul Grewal and chief financial officer Alesia Haas.

According to the filing, the defendants allegedly made false or misleading statements between April 2021, when Coinbase went public through a direct listing, and June 2023. The plaintiff argues that these oversight failures ultimately exposed Coinbase to regulatory enforcement actions.

In early 2023, Coinbase reached a $100 million settlement with the New York State Department of Financial Services (DFS) over deficiencies in its anti-money laundering (AML) compliance program. In another instance, the company was hit with a $5 million penalty from New Jersey’s Bureau of Securities related to the listing of unregistered securities.

Related: Trump met Coinbase CEO before slamming banks over crypto bill: Report

Shareholder suit seeks damages, insider profit clawbacks

The lawsuit seeks damages on behalf of Coinbase, along with corporate governance reforms and the clawback of compensation and profits allegedly earned by insiders while the company’s compliance issues persisted.

Because the case is structured as a shareholder derivative action, any financial recovery would go to Coinbase rather than directly to shareholders.

The complaint also calls for a jury trial and accuses the defendants of unjust enrichment, abuse of control and breaches of fiduciary duty tied to what it describes as systemic compliance failures.

Cointelegraph reached out to Coinbase for comment, but had not received a response by publication.

Related: Coinbase opens stock and ETF trading to all US users in multi-asset push

Coinbase faces more lawsuits

In January, a Delaware judge allowed a shareholder lawsuit accusing several Coinbase directors of insider trading to move forward, despite an internal investigation that cleared the executives. The case claims that insiders, including Armstrong and board member Marc Andreessen, used nonpublic information to avoid more than $1 billion in losses by selling shares around Coinbase’s 2021 direct listing.