Coinbase is facing a class-action lawsuit in the United States as the crypto exchange allegedly misled investors about its financial state ahead of the public listing.
The American crypto exchange giant went public on Nasdaq with a direct listing of 114,850,769 shares of its class A common stock. It was one of the hyped public listings in the crypto space and attracted a lot of retail investors.
The lawsuit filed by the law firm Scott + Scott in the California Northern District Court on Thursday, names Coinbase shareholder Donald Ramsey as a plaintiff and is inviting other shareholders if they want to join the legal battle.
The formal court complaint named Coinbase and its top executives, including CEO Brian Armstrong and Chief Legal Officer Paul Grewal. In addition, it has included several venture capitals that backed the exchange.
According to Ramsey, the crypto exchange made ‘materially misleading statements’ in its offering material of the public listing.
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“At the time of the Offering: (1) the Company required a sizeable cash injection; (2) the Company’s platform was susceptible to service-level disruptions, which were increasingly likely to occur as the Company scaled its services to a larger user base,” the lawsuit stated.
These allegations are primarily based on Coinbase’s announcement of raising $1.25 billion with a bond offering in May, only a month after its public debut.
The preparations of the bond sale along with some other revealed technical issues crashed the price of the exchange shares by around 10 percent. Currently, Coinbase shares are trading at almost $225 apiece.
“Investors were also likely surprised by the timing of the issue, considering that Coinbase just went public in mid-April via a direct listing (which doesn’t involve issuing new shares or raising capital), signaling that it didn’t require cash. So, the company’s decision to issue bonds a little over a month later is likely raising some questions,” the court complaint added.
In June, a group of six plaintiffs filed another class-action lawsuit against Coinbase for suspension of their accounts.