SEC vs. Coinbase: Hearing, Filings, Court Dates and Details in Full

Key Takeaways

• The US SEC has sued Coinbase only one day after it sued Binance
• Coinbase has won an initial victory in its campaign to make the SEC explain how it decides when cryptos should be considered securities
• Coinbase CEO Brian Armstrong called SEC’s Chair Gary Gensler – a lone crusade with his anti-crypto view
• Coinbase’s legal actions demonstrate its determination to seek regulatory clarity and protect the interests of the crypto community

For years, the crypto industry has consistently emphasized the importance of regulatory clarity from U.S. regulators. Among those facing scrutiny from the Securities and Exchange Commission (SEC) is Coinbase. Last year SEC began working hard to address unregistered securities.

However, Coinbase has always maintained its stance that no cryptocurrency should be classified as a security. Coinbase argues that cryptocurrencies, by their very nature, are different from traditional securities. They operate on decentralized networks, employ cryptographic technology, and serve various functions beyond mere securities.

In the latest development, Coinbase has been accused of operating illegally without first registering with the regulator, and the SEC filed a lawsuit against it on Tuesday, June 6.

SEC Lays New Charges Against Coinbase After Suing Binance

Tuesday’s lawsuit came only one day after the SEC sued Binance, the world’s largest cryptocurrency exchange, and its founder Changpeng Zhao.

Both actions are a part of Gary Gensler’s initiative, SEC Chair, to give investors who trade virtual currencies, additional protection.

“Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection,” Gensler wrote in a tweet.

In a complaint filed in Manhattan federal court, the SEC alleged Coinbase had, since 2019, generated billions of dollars by facilitating Bitcoin transactions, while dodging the disclosure rules required to protect investors.

The complaint attacked numerous areas of Coinbase’s operation including Coinbase Prime, which directs orders; Coinbase Wallet, which gives investors access liquidity; and the Coinbase Earn staking program.

In the staking program, Coinbase pools cryptocurrency assets and employs them to speed up activity on the blockchain network in return for “rewards” it gives clients after keeping a cut for itself.

According to the SEC, Coinbase was “fully aware” that its operations were subject to federal securities laws but chose to disregard them.

Gurbir Grewal, the head of SEC enforcement, said in a statement, “You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones.

SEC Vs. Coinbase – All you need to know 

In a more recent development, the SEC responded to Coinbase’s petition for a writ of mandamus on May 15 — asking the court to require the SEC to respond just yes or no to whether it will undertake rulemaking for crypto industry. 

With this latest response from the SEC, Coinbase expresses anticipation for the upcoming opportunity to provide a formal reply and filed a formal mandamus on May 22. The company acknowledges and values the Court’s diligent and thoughtful consideration of the matter at hand.

It is to be remembered that on May 15, SEC took the initiative to file a court order in an attempt to dismiss Coinbase’s request for a response to its rules petition. However, it also acknowledged its ongoing reliance on enforcement actions as a substitute for rulemaking in the foreseeable future.

The absence of clear guidelines hinders productive activities, stifles innovation, and undermines the broader economic and strategic interests of the United States.  Even the Chamber of Commerce expressed its concern that the Securities and Exchange Commission’s (SEC) lack of clarity has resulted in economic damage not only to Coinbase but also to the wider business community. 

To resolve this issue, Coinbase, a month ago, urged the Third Circuit Court of Appeals to compel the SEC to provide “regulatory clarity” concerning the application of existing securities laws to the rapidly evolving digital asset industry. Allegedly, the exchange’s filing is seen as a proactive measure to argue that the SEC’s current approach fails to offer adequate regulatory guidance for U.S. companies operating in the crypto sector. 

What is Coinbase Doing about the SEC?

Aside from taking court action, Coinbase has taken action against the U.S. Securities and Exchange Commission (SEC) by launching #Crypto435, a campaign in which more than 25,000 Americans from all 435 Congressional Districts have signed up to be crypto advocates. Coinbase is providing two additional ways for people to get involved. 

They are hosting Crypto435, where participants can hear from Brian Armstrong, Coinbase’s Founder and CEO, about important policy issues and ask questions. Additionally, individuals can sign an open letter urging Congress to pass legislation supportive of the crypto industry.

Also, in a more focused move, Coinbase has initiated legal action by filing a petition in federal court with a specific objective: to compel the Securities and Exchange Commission (SEC) to provide a straightforward response, either a “yes” or “no,” to Coinbase’s pending rulemaking petition. The petition urges the SEC to offer long-awaited guidance for the cryptocurrency industry, emphasizing the need for clarity and regulatory direction.

Lastly, during an interview with CNBC’s Dan Murphy in Dubai, Coinbase CEO Brian Armstrong expressed his observation regarding Securities and Exchange Commission (SEC) Chair Gary Gensler’s stance on cryptocurrencies. “There’s kind of a lone crusade, if you will, with Gary Gensler, the chair there, and he has taken a more anti-crypto view for some reason,” Armstrong said.

What do Lawyers say?

According to James Murphy, if the Securities and Exchange Commission (SEC) proceeds with its threat to sue Coinbase, it is likely to lose the legal battle. “If the SEC follows through on its threat to sue Coinbase, I believe the SEC will lose. The SEC’s case has a fatal flaw. And the problem is entirely of Gary Gensler’s own making.”

Another attorney representing Ripple commented that the SEC’s motives appear to be driven by a political agenda rather than a strong legal case.

Gary Gensler, the SEC Chair, plays a significant role in this context, and his approach could be considered a fatal flaw in the entire case. However, the SEC said that the public statements by Chair Gensler are not formal guidance or policy statements from the SEC and the public cannot rely on them as such.

Lastly, Brad Garlinghouse, CEO of Ripple Labs, has even mentioned a potential “Crypto Exodus” from the U.S. due to the SEC’s actions and regulatory uncertainties. 

Conclusion

The ongoing battle between Coinbase and the Securities and Exchange Commission (SEC) highlights the urgent need for regulatory clarity in the cryptocurrency industry. The lack of clear guidelines and inconsistent enforcement actions have created a hostile regulatory environment, hindering innovation and economic growth. 

Coinbase’s legal actions, such as filing a petition and launching the #Crypto435 campaign, demonstrate its determination to seek regulatory clarity and protect the interests of the crypto community.

However, the outcome of the legal proceedings and the SEC’s response remain uncertain, and it may take years before a court decision on the mandamus petition is reached. In the meantime, the industry continues to face challenges, and the call for comprehensive regulations persists.