Popular crypto exchange Coinbase has issued a fiery challenge against recent SEC allegations and claims that it does not engage in trading unregistered securities. According to Coinbase, allegations from the SEC are based on “superficial and incorrect analogies to products and services offered by others.”
CNBC reports that the leading cryptocurrency exchange Coinbase has responded to the SEC’s Wells notice from last month, arguing that any enforcement action against it would not only fail on the merits but also put the regulator at risk. The exchange is defying the SEC’s accusations, insisting that it has never traded unregistered securities and has always worked with the regulator.
In a blog post written by Chief Legal Officer Paul Grewal, Coinbase maintains that it does not list, clear, or trade in securities, and that the SEC’s analysis is based on “superficial and incorrect analogies to products and services offered by others.” The company argues that the enforcement action is unjustified and that the regulator’s strategy is flawed.
Securities and Exchange Commission Chair Gary Gensler (AFP)
Grewal told CNBC in an interview, “At the time when we went public, we had detailed discussions with the SEC about the very aspects of our business that are now — two years later — the subject of the Wells notice. Nothing has changed.” He emphasized the consistency of the company’s operations and the falsity of the SEC’s accusations.
Concerns were raised about Coinbase’s spot trading, staking, custody, and institutional trading operations in the SEC’s warning to the company, noting that the regulator would claim Coinbase was offering and selling unregistered securities, which is against federal law. The SEC previously used such violations to force other cryptocurrency exchanges, like Kraken, to stop operating in the United States.
According to Coinbase’s response, the proposed fees are based on “flawed and untested” theories involving investment contracts, spot markets, and custody services. The business issued a point-by-point denial of the Howey test’s applicability to the exchange’s staking service, a method used by securities lawyers to determine whether transactions qualify as investment contracts. “Coinbase’s retail staking services fail all four prongs of the Howey test,” said Coinbase’s response.
This week, Coinbase filed a lawsuit against the SEC over its lack of transparency related to enforcement action. Breitbart News reported:
CNBC reports that in an effort to force the SEC to publicly release its response to a petition regarding the regulation of the cryptocurrency industry within SEC frameworks, cryptocurrency exchange Coinbase filed a lawsuit against the agency on Monday.
In a petition filed in July 2022, the SEC was urged to “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods,” which refers to digital assets like cryptocurrencies. The SEC has aggressively increased enforcement actions and warnings against crypto exchanges, including Coinbase itself, despite the fact that it has not publicly responded to the Coinbase petition.
Coinbase Chief Legal Officer Paul Grewal wrote in a blog post, “From the SEC’s public statements and enforcement activity in the crypto industry, it seems like the SEC has already made up its mind to deny our petition. But they haven’t told the public yet. So the action Coinbase filed today simply asks the court to ask the SEC to share its decision.”
Coinbase emphasizes its history of collaboration with the SEC and argues that, had it not already approved Coinbase’s S-1 filing, the regulator could have prevented the company from going public in 2021. The exchange stresses that it has never desired to go to court with the SEC and that the regulator should feel the same way.
“Litigation will put the Commission’s own actions on trial,” Coinbase wrote in its response, adding that such a course of action would “erode public trust cultivated over decades.” The company has urged a more cooperative approach to solving the problem as it thinks going to court would ultimately harm both parties.
Read more at CNBC here.
Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship. Follow him on Twitter @LucasNolan