A Delaware judge has permitted a shareholder lawsuit to advance, alleging that several Coinbase executives engaged in insider trading, despite an internal investigation finding no wrongdoing.

The case, filed in 2023, claims that directors including CEO Brian Armstrong and Marc Andreessen leveraged confidential information to evade more than $1 billion in losses by selling shares during Coinbase’s 2021 public debut. According to the lawsuit, insiders sold over $2.9 billion worth of stock, with Armstrong selling around $291.8 million.

On Friday, Judge Kathaleen St. J. McCormick of the Delaware Chancery Court denied a motion to dismiss the lawsuit following an inquiry by a specialized litigation committee established by Coinbase, as reported by Bloomberg Law. Though the judge remarked that the committee’s findings could provide a solid defense, she indicated that concerns over the independence of one committee member warranted keeping the case active.

The allegations revolve around Coinbase’s choice to go public via a direct listing as opposed to a traditional IPO, allowing existing shareholders to sell immediately due to the absence of a lockup period.

Andreessen Accused of Liquidating $118 Million in Shares

Marc Andreessen, who has been on Coinbase’s board since 2020, is said to have sold about $118.7 million in stock through his venture capital firm. The lawsuit claims the directors were aware that Coinbase’s valuation was exaggerated and acted to prevent probable losses.

Coinbase and the implicated executives have refuted these claims, stating there is no evidence demonstrating that they acted upon material nonpublic information. Coinbase commented that it was unsurprised by the court’s decision and intends to contest what it regards as unwarranted accusations.

The lawsuit was suspended last year as a special litigation committee underwent a thorough review lasting 10 months. The committee ultimately suggested discontinuing the case, concluding that the stock sales were minimal and primarily aimed at providing liquidity for the direct listing. They asserted that Coinbase’s share prices closely corresponded with Bitcoin’s movements, disputing the claims of insider knowledge.

However, the plaintiff challenged the committee’s independence based on previous business associations between one committee member and Andreessen’s firm. McCormick concurred that these relationships raised credible concerns but recognized the absence of any indication of bad faith.

In addition, new allegations surfaced around insider trading, suggesting some traders might have profited from prior knowledge of asset listings on Coinbase. These allegations imply that blockchain analytics and technical signals may have been exploited to forecast potential listings, enabling some traders to act before public announcements.

In reaction, Coinbase announced intentions to reform its token listing process over the forthcoming quarters to minimize information leaks and unequal access to trading signals.