TL;DR:
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Coinbase has responded to a Wells Notice received from the SEC, urging the agency not to pursue enforcement action against the company for the SEC’s own sake.
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Coinbase argued that if the SEC had believed in April 2021 that Coinbase’s core businesses violated securities law, it would have been required by its own mandate to prevent the S-1 from becoming effective to protect the investing public.
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Coinbase warned that the SEC may sustain reputational harm if it tries to go after Coinbase because of the company’s efforts to comply with regulations and possibly discourage other companies from prioritizing compliance.
Coinbase, the leading cryptocurrency exchange in the U.S., has responded to a Wells Notice received from the SEC, urging the agency not to pursue enforcement action against the company for the SEC’s own sake. Coinbase became a publicly traded company when it was listed on the Nasdaq in 2021, and the company argued that by allowing it to be listed on Nasdaq, the SEC implied that it did not think Coinbase’s business was unlawful.
Coinbase also warned that the SEC may sustain reputational harm if it tries to go after Coinbase because of the company’s efforts to comply with regulations and possibly discourage other companies from prioritizing compliance. The exchange’s platform does not list securities, its Coinbase Wallet product does not constitute a broker, and the exchange’s staking services do not constitute a securities offering, according to the company’s response to the Wells Notice.
The ball is now in the SEC’s court, and the agency has up to six months from issuing a Wells Notice to decide if it wants to bring charges, according to Coinbase’s Vice President of Litigation, Katherin Minarik. If the agency wants to pursue enforcement, it will be voted on by the commissioners after the SEC staff assesses Coinbase’s response.
Regulators are taking a closer look at actors in the digital assets space following the collapse of cryptocurrency exchange FTX last November, which has given way to a litany of criminal charges against crypto’s former wunderkind, Sam Bankman-Fried. What’s unusual, according to Minarik, is that the SEC appeared to acknowledge it didn’t have the authority for enforcement actions against Coinbase in 2021 but has since changed its stance, despite a lack of regulatory developments.
Coinbase’s battle with the SEC doesn’t end here; the exchange announced late Monday that it was suing the SEC over Coinbase’s “petition for rulemaking,” sent to the regulator last July. The legal action aims to get the agency to respond to Coinbase’s plea for clearer crypto regulations.
The exchange has signaled that it is willing to butt heads with the likes of the SEC, and its CEO, Brian Armstrong, has drawn attention to his participation in the “Stand with Crypto” campaign. The exchange is also setting its sights abroad as the regulatory environment in the U.S. continues to heat up. Coinbase’s Chief Legal Officer, Paul Grewal, said in a press release on Thursday, “We do not relish litigation against the SEC, but we will vigorously defend ourselves. In the meantime, the financial system still needs updating, so we’ll continue building.” Coinbase is serious about doing what is best for Crypto and its customers.
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