As of August 4th, Coinbase has officially filed a brief to have its court case involving the SEC dismissed. The SEC has the opportunity to respond in kind until October 3rd.
Source: X @iampaulgrewal
Charges that were brought against Coinbase extend to include allegations of offering access to unregistered securities, in addition to operating as an unregistered broker, exchange, and clearing agency.
IPO Approval
This case is a particularly divisive one, as Coinbase was long viewed as one of the more regulatory-compliant exchanges in operation. This perception is only underscored when looking at the list of major companies already, or looking to, work with the exchange (e.g. Blackrock, Visa, etc.)
One of the main arguments put forth by Coinbase surrounding the SEC’s allegations that highlight this is that the regulator was fully aware of the services on offer by the exchange when it was approved to go public in 2021. In its brief, Coinbase states,
“All four services targeted here – the spot exchange, Prime, Wallet, and staking – have been central features of Coinbase since well before April 2021, when the SEC declared the Company’s registration statement effective after an extensive six-month review”
Essentially, Coinbase is saying that the SEC was fully aware of how it operated years ago. By approving its IPO, the SEC was essentially giving Coinbase and its operations a stamp of approval.
What Changed?
If the SEC gave an approval to Coinbase by greenlighting its IPO, what changed in the years since? Interestingly, it appears as though Coinbase believes that,
“The SEC wanted to get the jump”
Essentially, Coinbase puts forth that it is in what is being viewed as a regulatory turf war, with the SEC looking to stake its claim on the industry before others do the same. The quickest and easiest way to do so is not by waiting for Congress to determine a best path forward, but through regulation by enforcement instead.
A Lifeline
Coinbase, and perhaps the crypto sector at large, was through a lifeline when another case involving the SEC and Ripple Labs found that XRP tokens in and of themselves were not securities. With this being the case, the grounds on which the SEC made its case that at least 12 of the tokens supported by Coinbase were securities becomes very shaky.
“…the SEC has charged Coinbase based solely on blind, bid-ask, spot exchange transactions – the very sort of transactions the Ripple court recently held as a matter of law were not investment contracts because the undisputed facts showed no relevant relationship between the parties to the sale.”
While Coinbase may be looking to leverage this recent ruling to its advantage, it should be noted that the SEC has indicated it is considering appealing that recent decision.
The Fallout
Despite the widely viewed notion that the grounds for these charges are quite tenuous, Coinbase has nevertheless had to deal with a significant amount of resulting fallout. Due to the case, we have seen various states in recent months file a show-cause order, requiring Coinbase to shut down its staking program due to the alleged securities violation unless it showed cause why it should not. States involved included,
- Alabama
- California
- Illinois
- Kentucky
- Maryland
- New Jersey
- South Carolina
- Vermont
- Washington
- Wisconsin
This action resulted in a sizable drop in value of Coinbase (COIN) shares from $64.55 to $50.56 in the coming days. Despite this, Coinbase (COIN) has proven quite resilient in the months, with the exchange capitalizing on being named in various surveillance agreements in Bitcoin ETF filings from various companies. At time of writing, COIN is trading at $90.75.
Coinbase isn’t the only company affected by this, and other, ongoing lawsuits. Over the past few months, there have been scores of other companies that have opted to leave the U.S. as result of the uncertain regulatory environment – the latest of which is Revolut.
The post Coinbase Looks for Dismissal of Lawsuit – “The SEC Has Overstepped Its Statutory Authority” appeared first on Securities.io.
