Coinbase executives sold shares as community criticised them. Who is right?

On April 14 began trading Coinbase’s shares on Nasdaq — during the first session the company’s market capitalization exceeded $85 billion. In that and the following days, top executives and investors sold large blocks of their shares — some members of the community misinterpreted these actions.

In reports for the SEC, filed on April 16, it states that Class A shares were sold for a total of about $5 billion on April 14 and 15.

According to the document, CEO Brian Armstrong sold 749,999 shares in three blocks at prices ranging from $381 to $410.40 per share, receiving $291.8 million.

Board member Marc Andreessen together with venture firm Andreessen Horowitz and two related organizations sold in total 1.18 million shares for $449.2 million.

Another board member Frederick Wilson disposed of 4.7 million shares for $1.82 billion. He is also a partner at venture firm Union Square Partners, which through its fund [Union Square Ventures 2012 Fund LP] sold some Coinbase shares for a similar amount.

Shares were also sold by the company’s Chief Financial Officer Alesia Haas, President Emilie Choi and others, according to GuruFocus.

On April 17, one Twitter user posted a screenshot from Open Insider with data on Coinbase insiders selling their assets. The post amassed more than 1,000 retweets and drew outrage from financiers and some members of the community.

lolol wtf pic.twitter.com/ezZx5F8ua9

— Dereck Coatney (@DereckCoatney) April 17, 2021

One of those who retweeted the post was the bitcoin skeptic Peter Schiff. He claimed that Armstrong “dumped 71% of his shares,” while the other top executives dumped “63%, 86%, 97% and 100% respectively.”

On the same day #Coinbase CEO @brian_armstrong was on @CNBC publicly pumping COIN, he was privately dumping 71% of his shares. Other insiders selling included the Pres., CAO, CPO, and CFO who dumped 63%, 86%, 97%, and 100% respectively. Union Square Venture fund also dumped 100%. pic.twitter.com/C0oqScTYbR

— Peter Schiff (@PeterSchiff) April 18, 2021

Philosopher and author of The Black Swan Nassim Taleb, who had previously criticized Coinbase, shared Schiff’s post.

Reverse skin-in-the-game. You package a company to sell it to suckers.
—
Note: when a person with the title of “Chief Accounting Officer” is dumping shares, you know something is going on. https://t.co/SGMw29cOuX

— Nassim Nicholas Taleb (@nntaleb) April 18, 2021

«Note: when the Chief Financial Officer dumps shares, you know something is going on», exclaimed Taleb.

Chief legal officer Paul Grewal drew attention to the fact that, unlike an IPO, a direct listing does not entail the issue of new shares—the only sources of sales can be investors and management.

First of all, there are no new shares offered as part of a direct listing. Only existing shares can be bought or sold. This means that existing shareholders MUST provide enough supply to successfully invite new investors in and bring the company public.

— Paul Grewal (@iampaulgrewal) April 19, 2021

According to him, the company must sell a portion of its shares to create sufficient supply and ensure liquidity. The largest shareholders are investors and management — meaning they will provide the largest sales on the listing day.

For Coinbase, this means that we saw our investors and certain executives create this pool of liquidity. Without their sales, CB could not have successfully created a supply of shares that could enable new investors to come in, which is basically the point of a DL.

— Paul Grewal (@iampaulgrewal) April 19, 2021

Crypto trader and host of The Wolf Of All Streets Scott Melker called the Open Insider screenshot “fake news.” The screenshot counted only the shares slated for sale in the direct listing to create liquidity.

This is utterly fake news.

This chart shows a percentage of the shares registered specifically for sale to make the direct listing possible.

This is literally how a direct listing works and are a fraction of their total holdings.

— The Wolf Of All Streets (@scottmelker) April 18, 2021

As The Block calculated, Haas sold roughly 15% of her total stake, Chief Operating Officer Surajit Chatterjee roughly 8%. For Choi this figure was about 24%, and Armstrong less than 2%.

Founder DeFi Pulse Scott Lewis noted that the author of the post was looking at the percentage of exercised options rather than the percentage of the sold economic stake.

“Do you really think it reasonable that the founder of a $100 billion company walked away with only $200 million?”, asked Lewis.

As Coinbase filed for the direct listing, the largest institutional holders were Andreessen Horowitz (14.1% voting rights), Union Square Ventures (8.1%) and Ribbit Capital (7%). The Coinbase cap also included venture firms Paradigm, Tiger Global and Viserion Investment.

The largest private shareholders are the founders Brian Armstrong and Fred Ehrsam, as well as Chief Commercial Officer Surajit Chatterjee. Armstrong owns 21.6% and 8.9% voting rights respectively, with Chatterjee owning less than 1%.

On the first day of trading Ark Invest via three of its Exchange-Traded Funds bought 749,205 Coinbase shares. It later added another 341,186 shares worth $110 million.

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