• Coinbase is currently under the scrutiny of the U.S. SEC
  • It received a Wells Notice from the agency in March
  • Its top boss and other executives are accused in a new lawsuit

An investor has filed a lawsuit against Coinbase co-founder and CEO Brian Armstrong, board member Marc Andreessen and other officers for allegedly using insider information to dump $3 billion in stock before bad news made the share price drop, thereby avoiding $1 billion worth of losses.

The lawsuit, which was filed in Delaware Chancery Court on Monday, said the accused used the so-called direct listing instead of the usual initial public offering and immediately sold off $2.9 billion in stock prior to revealing "material, negative information that destroyed market optimism from the company's first quarterly earnings release forward," according to Bloomberg.

"By positioning themselves to sell their shares immediately after the Direct Listing but before revealing crucial information to the public, Defendants avoided $1.09 billion in losses," the court filing indicated.

The lawsuit also alleged that Armstrong sold $291.8 million worth of Coinbase stocks as part of the direct listing while Andreessen Horowitz, the venture capital company founded by board member Andreessen, dumped $118.6 million worth of stocks.

"Within five weeks, those shares declined in value by over $1 billion, and Coinbase's market capitalization plummeted by more than $37 billion," Adam Grabski, who claimed that he had held Coinbase shares since April 2021, alleged in the lawsuit, as per the outlet.

Coinbase became a Nasdaq-listed company on April 14, 2021, with COIN, the company's stock symbol, trading at more than $380 at the onset. The stocks surged to as high as $429 per share on its volatile first day, the court filing said.

"Defendants took full advantage of the absence of any lock-up in the Direct Listing, rapidly selling over $2.9 billion of Coinbase stock on the first day and in the days that followed, from April 14, 2021, through April 22, 2021," Grabski claimed in the filing.

Coinbase CEO Brian Armstrong
Coinbase CEO Brian Armstrong. Anthony Harvey/Getty

However, Coinbase downplayed the lawsuit, calling it a "meritless" claim.

"As the most popular and only publicly traded crypto exchange in the U.S., we are at times the target of frivolous litigation," Coinbase said in a statement, according to Bloomberg.

"This is an example of one of those meritless claims," it added.

Coinbase is one of the subjects of an ongoing crackdown in the cryptocurrency sector in the United States.

The U.S. Securities and Exchange Commission (SEC) issued a Wells Notice to the crypto exchange platform in March over potential Securities Law violations.

Last month, Armstrong urged the U.S. Congress to intervene and stop the SEC from further causing "untold harm to America with its policy of regulation by enforcement."