Coinbase Preemptively Takes SEC To Court, But Is It A Smart Move?

It seems Coinbase Global (NASDAQ: COIN) is taking first mover advantage after the crypto exchange filed a lawsuit against the US Securities and Exchange Commission (SEC), trying to persuade the securities regulator to give clarity for the cryptocurrency industry.

The crypto exchange asked a US federal judge to order the SEC to reply to its earlier regulation petition within seven days in a narrow action.

In July last year, Coinbase requested that the SEC propose and adopt guidelines to define which digital assets are securities and how securities laws would apply to digital assets.

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“Coinbase does not ask the Court to instruct the agency how to respond. It simply requests that the Court order the SEC to respond at all,” Coinbase said in a recent federal court filing.

The SEC released its framework for how digital assets fit within investment contract and securities laws in 2019, but the US crypto sector as a whole found it unsatisfactory.

With the exception of bitcoin, SEC Chair Gary Gensler has repeatedly stated that the majority of the 10,000 tokens in the crypto market are securities. He’s also been vague about his views on ether, despite the fact that he wants crypto firms to register with the SEC.

According to Coinbase, the SEC’s lack of codified decision-making has caused uncertainty for crypto companies and prevented them from fully preparing for the future.

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“It is widely recognized – including by a sitting SEC Commissioner – that existing SEC registration and disclosure requirements are incompatible with digital assets, which differ fundamentally from the stocks, bonds, and investment contracts for which the securities laws were designed and that the SEC traditionally has regulated. The SEC at a minimum must set forth how those inapt and inapposite requirements are to be adapted to digital assets. But the SEC has refused to do even that,” the filing said.

Separately, the exchange’s chief legal officer, Paul Grewal, stated that the SEC is conducting enforcement actions based on an understanding of the law that has not been publicly discussed.

“We believe we have an obligation to our industry, our customers, our shareholders, and our employees to leave no stone unturned when it comes to seeking regulatory clarity in the US,” Grewal wrote in a blog post. “The action Coinbase filed today is a small but important part of our multi-year, continual plea to leaders in Washington for clear rules of the road.”

The move seemingly comes as a preemptive legal strike by Coinbase, who is currently embroiled with regulatory hurdles after the SEC issued the firm one of its infamous Wells Notices–a document that’s usually a precursor to a lawsuit by the regulatory agency. This is part of the SEC’s intensifying crackdown on crypto firms, arguing that their digital assets are considered securities and must be regulated under the purview of the agency.

In response, the company did not hold back in the battle it has had in seeking regulatory certainty from the commission, commenting that they provided two different potential registration models for the exchange, and others in the crypto space. 

“We developed and proposed two different registration models. We spent millions of dollars on legal support to build these proposals and repeatedly asked for the SEC’s feedback. We got none. We also reiterated that we stand by our listings process – we don’t list securities today – and repeatedly invited the SEC to raise any questions about any asset at all on our platform. They raised none,” they wrote.

This comes on the heels of Coinbase securing a license to operate in Bermuda, indicating that the company is doubling down on plans to expand its foreign operations at a time when US regulators have proven unfriendly to the crypto industry.

In a blog post, the firm announced that it had received the license from the Bermuda Monetary Authority, the island nation’s integrated financial regulator, which was one of the first in the world to implement a full regulatory framework for digital assets in 2018.

This comes after CEO Brian Armstrong indicated that the crypto firm could move out of the US amid regulatory issues with the Securities and Exchange Commission, saying “anything is on the table, including relocating or whatever is necessary.”

“I think the U.S. has the potential to be an important market for crypto, but right now we are not seeing that regulatory clarity that we need,” he said at Fintech Week in London. “I think in a number of years if we don’t see that regulatory clarity emerge in the U.S. we may have to consider investing more elsewhere in the world.”

Coinbase Global, Inc. last traded at $54.74 on the NASDAQ.


Information for this briefing was found via Blockworks, Coindesk, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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