Coinbase (NASDAQ:COIN) has posted a 73-page response to the Securities and Exchange Commission’s (SEC) Wells Notice which indicates a high likelihood of an enforcement action by the commission.
Last month, Coinbase revealed it was in receipt of the Wells Notice while taking a defiant stance against the regulator which has cracked down on many crypto platforms alleging the issuance and trading in unregistered securities. Coinbase stated at that time:
“… 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. A Wells notice is the way that SEC staff tells a company that they are recommending that the SEC take enforcement action for possible violations of securities laws. It is not a formal charge or lawsuit, but it can lead to one. Rest assured, Coinbase products and services continue to operate as usual – today’s news does not require any changes to our current products or services.”
The new document revisits Coinbase’s initial public offering, which was approved by the SEC. The document reminds the reader that early on in the odyssey, SEC Chair Gary Gensler first said he thinks that only Congress could address the regulatory opacity “because right now, the exchanges trading in these crypto assets do not have a regulatory framework either at the SEC, or our sister agency, the [CFTC].”
Soon, Chair Gensler reversed his opinion declaring the SEC has the authority to regulate crypto as all digital assets are securities.
As we know, Congress has struggled to approve legislation to provide digital asset platforms with regulatory clarity, and in the vacuum, the SEC has stepped up its activity, enforcing securities laws.
Coinbase states the obvious if the SEC did not believe that it was compliant – why did it approve its registration statement?
Again, Coinbase claims that charges targeting Coinbase rely on “legal theories, each of which is flawed and untested.”
The document states:
“The [SEC] Staff first contends that some unidentified subset of the digital assets listed on Coinbase’s spot platform meet the definition of a security. We say “unidentified” because when Coinbase asked during the Wells call which assets the Staff views as securities, the Staff responded that it was “not in a position” to identify them. Instead, the Staff pointed to (i) the securities fraud charges the Commission filed last year against a faithless Coinbase employee who front-ran Coinbase’s listing of a handful of digital assets in violation of its own policies, and (ii) public statements by Chair Gensler that he believes the majority of digital assets are securities. But Coinbase does not list the majority of digital assets. Nor does Coinbase attempt, as another crypto platform allegedly did, to instigate post hoc changes to the factual record to defend its listing decisions.”
So is Coinbase an unregistered exchange, flouting the Exchange Act, trading in unregistered securities ignoring the rules? This is where the battle lines have been drawn.
Coinbase adds that it has never wanted to litigate the Commission, understandably so. The digital asset marketplace believes there are alternative paths that are beth sides of the aisle.
Coinbase has posted a four-minute video of CEO Brian Armstrong and Paul Grewal, Chief Legal Officer, pleading their case to the Commission as well as the masses.
At the same time, Coinbase has created a new section of its website entitled Crypto435 asking people to become advocates – contacting their Congressional representatives. At the same time, Coinbase has launched an Act Now campaign. as well as creating a Stand with Crypto NFT.
Now up to 56,300 minted 👀https://t.co/4T0OWbpCCf
— Brian Armstrong 🛡️ (@brian_armstrong) April 27, 2023