Global Courant 2023-04-28 03:05:50
Crypto exchange Coin base on Thursday offered a fiery response to last month’s Wells message from the Securities and Exchange Commission, in which he told the federal regulator that an enforcement action against the crypto exchange would pose “major programmatic risks” to the SEC that would “work on its merits.” fail”.
“Coinbase does not list, clear or facilitate trading in securities,” the company said answer said. SEC staffers’ analysis to justify an enforcement action “appears to rely on superficial and erroneous analogies to products and services offered by others,” Coinbase wrote in a statement. blog post from Chief Legal Officer Paul Grewal.
Separately, Grewal told CNBC, “When we went public, we had detailed discussions with the SEC about the aspects of our business that are now — two years later — the subject of the Wells notice. Nothing has changed.”
The SEC indicated in March’s Wells Communication to Coinbase that its spot trading, staking, custody and institutional trading activities were at risk. The SEC’s warning to Coinbase noted that the regulator would allege that Coinbase was offering and selling unregistered securities in violation of federal law. The SEC has used unrecorded offers and sales violations to force other crypto exchanges to shut down services in the US, including crypto exchange Kraken’s strike-as-a-service product.
If the SEC were to succeed, it could force Coinbase to close those units. To date, the SEC has never approved any crypto asset entity as one national stock exchangedespite extensive dialogue with Coinbase over the years.
Executives at the crypto firm have been signaling for months that Coinbase is ready to wrestle with the SEC on an existential matter not only for Coinbase, but for the future of the US crypto industry as a whole.
Coinbase noted that the company’s long-standing efforts to collaborate with SEC securities personnel did not raise concerns among SEC employees until recently. Coinbase also noted that the SEC could have denied the company permission to go public in 2021 when it reviewed Coinbase’s S-1 filing.
Perhaps most consistently for the rest of the US crypto industry, Coinbase also argues that the proposed charges rest on “flawed and untested” theories related to investment contracts, spot markets, and custodial services.
Securities lawyers rely on something known as the Howey test, from a Supreme Court case in which the SEC sued a Florida orange grove operator for a leaseback and profit-sharing arrangement related to the sale of oranges.
The four elements Howey needs to determine whether transactions are investment contracts are: an investment, in a joint venture, reasonable expectation of profit, derived from the work of others.
Coinbase is a secondary market, meaning investors buy and sell assets they already own rather than buying them directly from an issuer. The Nasdaq and the New York Stock Exchange are also secondary markets for US stocks. Courts were already reluctant to “extend Howey’s reach to secondary asset trading that doesn’t involve an issuer,” Coinbase’s response said.
Coinbase also issued a point-by-point rejection of Howey’s applicability to the exchange’s staking service. Coinbase’s retail staking services fail on all four counts of the Howey test.
Coinbase is represented by Sullivan & Cromwell.
“The SEC generally acknowledges the existence or non-existence of any investigation unless or until charges are filed,” an SEC spokesperson told CNBC.
“Coinbase never wanted to litigate with the Commission. The Commission would not want to litigate either,” Coinbase wrote in its response. “Litigation will bring the Commission’s own actions to justice,” said Coinbase, and “erode the public trust cultivated over the decades.”
