Coinbase and several of its top executives are facing a shareholder lawsuit that claims they misled investors regarding the company’s bankruptcy risks and securities law violations.

The complaint, filed on February 18, 2025 in a New Jersey federal court by shareholder Wenduo Guo, alleges that Coinbase failed to disclose critical information about customer assets in the event of bankruptcy. The lawsuit claims that Coinbase leadership neglected to inform investors that customer assets could be part of the company’s bankruptcy estate, potentially leaving retail users as unsecured creditors.

Guo argues this omission placed investors at risk, noting that 75 cryptocurrency exchanges had previously collapsed before Coinbase’s public listing in April 2021, causing many customers to lose access to their funds.

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

Additionally, the lawsuit alleges that Coinbase engaged in proprietary trading, a practice where the company trades its own capital to counter falling cryptocurrency prices. Guo asserts that this strategy was not adequately 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, accusing it of listing unregistered securities and failing to register as a securities exchange.

Named defendants in the lawsuit include:

• CEO Brian Armstrong
• Co-founder Fred Ehrsam
• CFO Alesia Haas
• COO Emilie Choi
• Chief Legal Officer Paul Grewal
• Various board members including Fred Wilson, Mark Andreessen, Kelly Kramer, Gokul Rajaram, Tobias Lütke, and former board member Kathryn Haun.

The lawsuit claims that these executives profited from stock sales while exposing investors to hidden risks from the company’s operations.

Guo demands financial remedies and corporate governance reforms to avert similar issues in the future, insisting on a jury trial to address the alleged misconduct.

This lawsuit compounds Coinbase’s growing legal troubles, including an ongoing class-action lawsuit in New York that accuses the company of selling unregistered securities without broker-dealer registration.

Key Takeaways

• Coinbase faces a shareholder lawsuit that alleges misleading information about bankruptcy risks.
• Executives are accused of risky proprietary trading and not fully disclosing financial risks while benefiting from stock transactions.
• This lawsuit adds to Coinbase’s challenges, which also include an SEC investigation.