Coinbase Gears Up For Lengthy Court Battle With The SEC

Coinbase CEO Brian Armstrong has warned that the cryptocurrency exchange faces a multi-year court battle with the SEC. 

Armstrong also stated that the exchange is considering other options, including leaving the United States, thanks to a lack of regulatory clarity. 

The preparation for court proceedings comes after the United States Securities and Exchange Commission warned Coinbase of several potential securities law violations. Coinbase received a Wells notice from the commission on the 22nd of March, indicating possible enforcement action. A Wells notice is typically the final step before the regulator moves ahead with pressing charges. After receiving the notice, Coinbase CEO Brian Armstrong expressed strong disappointment, stating that the company had not received any clear details from the SEC regarding the violations in question. Armstrong stated, 

“We’ve met with them over 30 times in the last year. […] [We] never got a single piece of feedback from them about what we can be doing better or differently, and then this Wells notice arrived. I think we’re going to have to actually end up going to court to get the clarity we need and create the case law.”

Armstrong stated that if necessary, Coinbase was prepared to meet the SEC in court and that while litigation was the last resort, going to court may give the company the clarity it requires. 

“We never seek litigation, but it seems, in this case, they have initiated it, and if we need to go to the courts to get the clarity that we need, then we are very prepared to do that.”

Armstrong also panned the SEC for consistently lacking clarity regarding crypto and companies operating in the crypto space. According to Armstrong, the SEC has failed to uphold its responsibility to the industry and publish a clear rulebook for the space. 

“The regulators’ job is to publish a clear rulebook and allow that market to be safe but also to flourish in that country, and I think they’ve completely abdicated responsibility.”

In recent months, the Securities and Exchange Commission has significantly increased its scrutiny of the crypto space and the companies operating in it. As a result, it has gone after companies allegedly offering unregistered securities, using enforcement actions to target these firms. One of the most high-profile examples of this is the ongoing lawsuit against Ripple. 

According to the SEC, Ripple sold unregistered securities, a claim that the company denies. 

Several cryptocurrency companies have also accused the SEC of a lack of clarity around what is and isn’t permissible. However, the SEC has contended that the existing rules are clear enough. 

Coinbase is a listed entity in the United States, with its stock up 90% during the current year. However, with recent developments, investors have adopted a “wait and watch” approach to see how the developments play out. Barclays had stated that the regulatory overhang on the Coinbase stock had increased thanks to the Wells notice. 

“We think the most onerous outcome could be that if various crypto assets are deemed securities, Coinbase would therefore need to register as a securities exchange in order to keep offering trading in those assets. Furthermore, under current securities law, securities exchanges are not permitted to offer services directly to retail customers, and Coinbase could theoretically be forced to separate the exchange and broker portions of the business.”

Armstrong also revealed that Coinbase is considering relocating from the United States thanks to a lack of regulatory clarity. He added that the company is looking at several other markets, with the United Kingdom as one of the key options thanks to its attempts at positioning itself as a crypto hub. 

“I think if a number of years go by where we don’t see regulatory clarity around us ... we may have to consider investing more elsewhere in the world. Anything including, you know, relocating. We’re a business ... like any business, we have a budget, and we have to decide where to allocate it. And so that means what products we want to build, but it also means what countries we want to invest it in any given year.”

The SEC has already initiated action against Bittrex for operating an unregistered national securities exchange, clearing agency, and a broker. According to John Reed Stark, the SEC’s former chief of the Office of Internet Enforcement, Coinbase would be the next platform on the SEC’s radar.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.