Coinbase (NASDAQ:COIN) is reportedly getting ready for an anticipated “years-long” court case with the US Securities and Exchange Commission (SEC). This, according to a report from CNBC, which is citing comments from Coinbase CEO Brian Armstrong.
It appears that this update has come after the US regulator warned the crypto exchange of potential violations of applicable securities law.
This past month, the SEC issued Coinbase a Wells notice, which indicates the SEC Division of Enforcement has recommended an enforcement action against the firm.
At that time, Coinbase stated:
“… we are disappointed to share that the SEC gave us a “Wells notice” regarding an unspecified portion of our listed digital assets, our staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet after a cursory investigation.”
In statements shared with CNBC, Armstrong noted that they have “met with them over 30 times in the last year … never got a single piece of feedback from them about what we can be doing better or differently, and then this Wells Notice arrived,”
He added that he thinks they are “going to have to actually end up going to court to get the clarity they need and create the case law.”
It’s worth noting that the SEC has recently increased its scrutiny on crypto-assets platforms, going after firms it claims are providing unregistered securities. The SEC has really started using major enforcement actions to target various companies.
One of the most notable lawsuits is with American Fintech firm Ripple, which has now been active since 2020. The SEC claims that Ripple has sold unregistered securities.
However, Ripple’s management has been disputing these allegations.
Responding to a question from CNBC about whether Coinbase is actually prepared for a years-long court battle with the SEC, Armstrong said, “Absolutely.”
He added that they “never seek litigation but it seems in this case they have initiated it and if we need to go to the courts to get the clarity that we need then we are very prepared to do that,”
Notably, the digital currency sector has expressed concerns that the SEC hasn’t given firms much-needed clarity on what they are able to do as crypto service providers (and not do). The regulator, however, maintains that the rules are quite clear under current laws.
Armstrong has also alleged that the SEC has acted in a manner that seems like an “abdication of responsibility.”
He added that the regulators’ duty is “to publish a clear rulebook and allow that market to be safe.” And also “to flourish in that country,” But Armstrong thinks they’ve “completely abdicated responsibility,”
Investors in digital asset firm Coinbase, which is currently listed in the U.S. and whose stock has surged around 90% in 2023, will be closely monitoring how the SEC situation plays out.
Barclays stated that “regulatory overhang” on Coinbase’s company stock “increased meaningfully” once the SEC had provided the Wells notice.
Barclays also mentioned that it thinks “the most onerous outcome could be that, if various crypto assets are deemed securities, Coinbase would therefore need to register as a securities exchange, in order to keep offering trading in those assets.”
As noted by Barclays:
“Under current securities law, securities exchanges are not permitted to offer services directly to retail customers, and Coinbase could theoretically be forced to separate the exchange and broker portions of the business.”
Recently, Armstrong made key statements during a fintech event in London.
He stated that the U.S. has “the potential to be an important market in crypto” however, at present, it is not providing regulatory clarity that the nascent industry really needs.
And should this persist, then Coinbase could look into various options of investing in its operations in other jurisdictions, such as relocating from the US to other places.
“I think if a number of years go by where we don’t see regulatory clarity around us … we may have to consider investing more elsewhere in the world.”
He further noted that the firm is “looking at other markets” in order to invest in and was “probably going to invest more” in the United Kingdom.
“Like any business we have a budget and we have to decide where to allocate it. And so that means what products we want to build, but it also means what countries we want to invest it in any given year. And with the U.S. kind of lagging a little bit … we are looking at other markets.”