The lawsuit filed in Delaware, where Coinbase was incorporated, states the company made misleading statements in its registration form with the SEC, filed in February 2021, months before the direct listing. The suit points specifically to the alleged failure of Coinbase’s growth strategy, referred to as “flywheel” in the file.
“Our unique approach draws retail users, institutions and ecosystem partners to our platform, creating a powerful flywheel: retail users and institutions store assets and drive liquidity, enabling us to expand the depth and breadth of crypto assets that we offer, and launch new, innovative products and services that attract new customers,” Coinbase said in its SEC registration statement.
But the increased volume on Coinbase ruptured its “flywheel” cycle, the suit alleges, adding that the crypto exchange increasingly suffered system disruptions and delays due to heavy demand. However, the complaint only references six such disruptions in 2019 and 12 incidents in 2020 in support of its claim. Coinbase went public in 2021.
‘Enforcement 40’ for 2020
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