Coinbase Faces New Bitcoin Cash-Related Insider Trading Lawsuit

San Francisco-based cryptocurrency exchange Coinbase is once again facing a class action lawsuit filed by traders, alleging there was insider trading ahead of its listing of Bitcoin Cash (BCH), the cryptocurrency created through a fork of the Bitcoin (BTC) network.

According to Finance Magnates, the lawsuit was filed against the firm in the US District Court for the Northern District of California, and sees the plaintiffs argue that the exchange “made false and deceptive statements” regarding the cryptocurrency’s listing.

Per the lawsuit, the plaintiffs allege Coinbase insiders were able to start buying BCH ahead of the listing, as they knew the cryptocurrency was going to be listed on the platform, and would go through what’s known as the “Coinbase effect” – the price rise a cryptoasset sees after being listed on the exchange.

The knowledge BCH would be listed, as such, allowed insiders to accumulate and rake in significant profits when the cryptocurrency was listed. Specifically, the plaintiffs claim the exchange allowed its insiders to open positions in the cryptocurrency, and only then opened the market to the public.

The crypto’s price was then inflated, and Coinbase then promptly shut down trading for the wider public, while still letting its insiders trade. At the time, according to CryptoCompare data, BCH saw a $9,500 high on Coinbase after its price started surging, and only went back to normal after trading was re-enabled.

Bitcoin Cash surged and plummeted after being listed on Coinbase

The price was inflated, the lawsuit implies, as Coinbase opened the market with only buy orders being available, meaning only its insiders were able to sell the cryptocurrency, at a premium.

This means some managed to sell their tokens at a high the cryptocurrency has never seen since then, even at the cryptocurrency market’s December highs. Bitcoin Cash’s current all-time high – across exchanges – was of about $4,100. At press time, it’s trading at about $256.

Coinbase can respond to the lawsuit’s allegations by December 20, and a hearing has been scheduled for January 31. The class action lawsuit comes shortly after another one, regarding the same listing process, was dismissed after a judge determined the plaintiff was unable to clarify how Coinbase could’ve done better.

As CryptoGlobe covered, Coinbase launched an investigation at the time, to determine whether any of its employees engaged in insider trading. The exchange claimed that the investigation “determined to take no disciplinary action” as it found no insider trading occurred.

Speaking to CNBC back then Roger Ver, a popular BCH-proponent, claimed he believes insider trading “is a non-crime” as trading in advance helps curb volatility and sees the price “much more closely reflect the price after the news became public.”

Overstock CEO Sells Shares in His Company to Invest in Blockchain Projects

Patrick Byrne, the chief executive officer of Overstock.com (OSTK), has recently lashed out at investors who questioned his sale of 900,000 of his ‘founders shares’ in the company. Justifying his move, he revealed he needed the funds to invest in blockchain projects.

According to Business Insider, Byrne recently sent a letter to shareholders after the company’s stock prices plunged over 21% this week to their lowest since 2012, after he revealed he sold 500,000 of his shares earlier this week.

On Friday, the CEO revealed he sold an additional 400,000 shares, meaning he sold over 15% of his stake in the company. Although Overstock’s shares recovered on Friday, May 17, Byrne’s letter to shareholders was notable. In it, he wrote:

I simply had to supplement my nominal salary with stock sales in order to fulfill personal commitments to invest personally in blockchain projects such as Medici Land Governance, along with a need to meet charitable pledges.

The CEO added that he doesn’t plan on giving such an explanation again, justifying that he owes shareholders “staying within the law and not making decisions based on inside information, not explanations of my life and projects outside Overstock.”

He noted that the “unanticipated stir” caused by his sale was unexpected, and added “I had no idea that shareholders would demand explanations of why and how I might want to use my cash derived from my labor and my property to pursue my ends in life.”

Byrne is notably Overstock’s largest shareholder, and noted he told investors a year ago he would be making “significant sales” to fund different projects, including those related to blockchain technologies and, presumably, cryptocurrencies.

In fact, the libertarian sold 775,000 of his shares in September of last year, before this week’s sale. The stock’s price has fallen roughly 90% from its record high in January of 2018, when Overstock was benefitting from its cryptocurrency ventures and accompanying the cryptocurrency market’s performance.

In November of last year, Byrne revealed he had plans to sell Overstock’s retail business and go “all-in” on cryptocurrencies and blockchain technology. The CEO’s plan would see the company focus on its fully-owned subsidiary Medici Ventures, which has been invested in blockchain-related startups, after selling its retail business.

Overstock's price performance over the last two yearsSource: Yahoo Finance

Byrne has notably been battling short sellers targeting Overstock, as the firm competes with the likes of eBay and Amazon. Financial analytics firm S3 Partners has estimated short bets against it stand at $157 million, or 50% of its float. This makes it more targeted by short sellers than 99% of companies in the U.S.

Despite the company’s performance on exchanges, Overstock has since launched its tZERO security trading platform, and was one of the first companies to pay a “portion” of its taxes using bitcoin in Ohio.