Coinbase Global Inc. is seeking dismissal of a lawsuit from the US’s top securities regulator, claiming allegations that the firm broke the agency’s rules lack merit.
(Bloomberg) — Coinbase Global Inc. is seeking dismissal of a lawsuit from the US’s top securities regulator, claiming allegations that the firm broke the agency’s rules lack merit.
“Coinbase just doesn’t list securities, period,” Paul Grewal, the company’s chief legal officer, said in an interview. He reiterated the firm’s prior argument that the Securities and Exchange Commission conducted an exhaustive review of Coinbase’s business practices, including processes it uses to vet tokens, prior to allowing the firm to go public in April 2021.
That’s “largely the business that we continue to run here in 2023,” he said. While Coinbase has greatly expanded the list of tokens it supports on its platform since going public, it has used “the exact same process” for token listings that the SEC reviewed in early 2021, Grewal said.
“We have always looked to add assets that are appropriate for not only our customers, but consistent with our lawful authority,” Grewal said in an interview with Bloomberg TV on Thursday.
The SEC sued Coinbase, the largest US crypto exchange, earlier this month. At the time, the regulator alleged in a 101-page lawsuit that Coinbase was illegally operating an unregistered securities exchange.
The crypto platform filed its answer to the complaint late Wednesday in New York. Grewal in a tweet said Coinbase also gave its intent to file a motion to dismiss the case. Coinbase shares rose 2.6% to $72.61 at 11:20 a.m. in New York. Coinbase shares have roughly doubled since the start of the year but are well off the peaks seen in 2021.
Coinbase and the SEC have long been at odds, but tensions reached a boiling point in March when the regulator sent the exchange a notice signaling its plans to sue. It was the second such notice from the SEC to Coinbase since 2021.
Long Battle Looms
Some securities lawyers have questioned the strength of Coinbase’s initial public offering argument, saying that the SEC’s review of an IPO filing largely focuses on whether adequate disclosures are made to investors, rather than on the legality or merits of a company’s business.
The registration statement that Coinbase filed with the SEC noted that whether a digital asset is a security “is subject to a high degree of uncertainty” and that the company could face regulatory scrutiny.
Grewal, however, said the SEC is required by law to consider the public interest and protection of investors when it reviews companies’ requests to be publicly traded. “So to now claim, after the fact, that the SEC gave no consideration or no regard whatsoever to the legality of the Coinbase business would be to fly in the face of its statutory obligation.”
Precedent suggests the legal battle between Coinbase and the SEC may turn into a years-long fight. The regulator has been mired in a court battle against another prominent crypto firm, Ripple Labs Inc., for almost three years.
SEC Chair Gary Gensler has repeatedly said most digital assets are securities and that crypto firms are breaking the agency’s rules when they fail to register. In the June lawsuit, the SEC specifically identified more than a dozen tokens listed by Coinbase as being unregistered securities. These included popular coins like Cardano’s ADA and Solana’s SOL.
Read: SEC Targets $120 Billion of Tokens With Coinbase, Binance Suits
Gensler has also warned that crypto companies frequently combine activities — such as custody and exchange services — that are normally performed by separate regulated entities, which puts investors at risk.
Dispute Over Engagement
Crypto companies including Coinbase contend the real problem lies with the SEC, which they say has failed to clarify how existing securities rules apply to digital assets and isn’t engaging, in any meaningful way, with the industry.
Read: Crypto Gets Its Moment of Clarity, But Not the One It Wanted
In the court filing late Wednesday, Coinbase said that there had been no material changes in its business since 2021 to explain the SEC’s “about-face.”
“The only change is in the SEC’s position regarding its powers,” the company said in the document. “That position is untenable as a matter of law, and its assertion through this enforcement action offends due process and the constitutional separation of powers.”
The agency hasn’t shown any signs of slowing down its enforcement. In the months since the implosion of FTX in November 2022, it’s brought a flurry of actions — from a settlement with Kraken over staking to a lawsuit against Binance Holdings Ltd., the world’s largest crypto exchange.
The crypto industry is “built up around non-compliance,” Gensler told lawmakers in April. “It’s not a matter of a lack of clarity,” he said. “They’ve chosen to be non-compliant and not provide investors with confidence, protections and it undermines the $100 trillion capital markets.”
–With assistance from Yueqi Yang and Peter Blumberg.
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