Andreessen’s Big Law Ties May Haunt Coinbase Case: Explained

Marc Andreessen’s sprawling web of tech investments is complicating his exit from litigation in Delaware—a state he just pointedly spurned—over billions in insider sales of Coinbase Global Inc. stock.

The lawsuit confronting Andreessen and the crypto platform’s other leaders, including CEO Brian Armstrong, says they dodged $1 billion in losses after its 2021 public listing by exploiting inside information to dump shares worth $2.9 billion. The investor leading the suit now says a company investigation aimed at shutting the case down was fatally undermined by extensive conflicts of interest centering on Andreessen’s venture capital empire.

Those claims about overlapping influence networks—set for a hearing Monday in Delaware’s Chancery Court—echo a major theme animating a cold war among competing constituencies that boiled over during a legislative push earlier this year to overhaul the state’s best-in-class corporate laws.

Among the overhaul’s most fiercely fought features was a section strengthening a presumption found throughout corporate law that directors and their advisers are generally capable of exercising independent oversight.

Scholars have portrayed that change as a rebuke of the elite business tribunal’s chief judge, Chancellor Kathaleen St. J. McCormick, whose $56 billion ruling against Elon Musk last year said he dominated the Tesla Inc. board. Monday’s hearing comes as McCormick and her colleagues are being closely watched for signs they’re adjusting their approach in response.

Here’s where the dispute unfolding in McCormick’s courtroom currently stands:

What Does the Lawsuit Allege?

The litigation, which began in 2023, involves so-called shareholder derivative claims technically asserted on Coinbase’s behalf against Andreessen, Armstrong, and other executives. Like many derivative cases, the suit seeks to claw back cash allegedly looted by insiders. Derivative damages are typically paid into a corporation’s coffers—rather than directly to investors—by its leaders or their insurers.

The scheme involved taking the company public through a direct listing rather than an initial public offering, a debut structure that prioritized gaining liquidity for insiders—and ensuring their stakes weren’t diluted—over simply infusing Coinbase with sorely needed capital, according to the most recent version of the court complaint.

The allegations amount to a type of insider trading claim, although they’re formally styled as fiduciary breaches, rather than securities law violations that could only be pursued in a federal forum. The lawsuit effectively says Andreessen, Armstrong, and their allies betrayed Coinbase by enriching themselves when they unloaded shares based on internal valuations showing the stock was overpriced.

The Coinbase board members have said they opted for a direct listing because the company was “exceptionally well-capitalized” when it went public. And because the listing structure required existing stockholders to sell shares into the open market, it would have been self-defeating to impose a lockup on insiders, they’ve argued.

They’re also disputing that the tax valuations motivated any of the insider stock sales. Nearly all of those sales came within two days of the direct listing, which shows they were driven by a desire to monetize trapped investments, they say—otherwise, they would have kept selling stock at prices they believed to be inflated.

What’s at Issue Monday?

McCormick let the lawsuit move forward in a preliminary ruling last year, saying its main theory was “reasonably conceivable.”

The board then set up a special litigation committee of allegedly independent directors, who paused the case to investigate the allegations—a common step Coinbase had the right to take because derivative claims count as corporate assets.

The committee moved to terminate the suit, as special committees almost always do. It said in a 70-page filing in July that the claims are too weak to justify the financial cost and potential embarrassment of a protracted court fight.

The investor behind the lawsuit, Adam Grabski, then submitted his own 72-page legal brief opposing the motion. The filing—arguing the process was plagued by conflicts—focused on one of the committee members, angel investor Gokul Rajaram, and the Silicon Valley law firm that conducted the probe, Wilson Sonsini Goodrich & Rosati PC.

Rajaram has joined at least 50 Andreessen Horowitz investments in the past few years, while Wilson Sonsini represented the venture giant in 10 financing rounds that raised $700 million during the 10-month investigation alone, according to Grabski’s brief.

Given the “insularity and patronage” that characterize the tech venture ecosystem, where “deal flow” is the common currency, it’s unrealistic to think someone immersed in that world “could level serious fiduciary claims against Andreessen without suffering any secondary fallout,” the filing said.

What’s at Stake for Delaware?

The Wilson Sonsini team is led by a former Delaware judge, Joseph R. Slights III, who returned to private practice in 2022. The role of retired judges in the corporate system has been a source of recent controversy, particularly the involvement of two prominent ex-jurists—though not Slights—in successive pieces of legislation that overrode landmark court rulings.

The second of those bills—this year’s Delaware corporate law overhaul—generally weakened judicial review of self-dealing in an effort to restore the state’s reputation with founders and other influential insiders who say the legal pendulum has swung too far toward minority investors.

One of those founders: Andreessen, who publicly blasted Delaware when he announced in July that he was moving his firm to Nevada.

In its motion to terminate the litigation, Coinbase’s committee stressed the general presumption of director independence. Grabski’s arguments boil down to a baseless “insinuation that Slights and his team of Delaware lawyers would cast aside their ethical obligations and reputations to skew an investigation in Andreessen’s favor,” the filing said.

Grabski countered that the independence presumption is replaced, in the special litigation committee context, by a “Caesar’s wife” standard requiring the committee and its advisers to appear totally beyond reproach. And the burden of proof is on the committee, he has said.