Boardroom breaks down key events in the past two-and-a-half years that have led the SEC and Coinbase to a lengthy legal battle.
Coinbase is a sponsored partner of Boardroom.
The legal battle between Coinbase and the US Securities and Exchange Commission (SEC) is inching closer to a courtroom. To fully grasp why, however, one must understand the nuances in the varying cases that led the two parties to this point.
Coinbase has always been vocal about its support for cryptocurrency regulations, and while it sounds contradictory, the company is pushing for guidelines to operate legally and in good faith. The SEC hasn’t been making that process easy, and soon, the agency and crypto exchange will appear before a judge.
“Unlike any other party that has found itself in an enforcement action brought by the SEC, we have actually been urging the SEC to pass reasonable rules for our industry for some time,” Coinbase chief legal officer Paul Grewal told Boardroom. “Not only have we been making quite public our calls for sensible rules for crypto, we actually went so far as to file a petition for rule-making with the SEC. We thought our interests were very aligned, but that petition went ignored for many, many months.”
Let’s detail some key moments in the past two-and-a-half years that have led the SEC and Coinbase to a courtroom.
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Coinbase vs. the SEC: Key Events
April 14, 2021
Coinbase Global became a public company after a six-month review process that included participation from the SEC. The agency essentially signed off on Coinbase’s business practices, including approval of the tokens listed on the exchange’s platform.
The SEC’s support of Coinbase at this time signaled a positive boost to legitimize digital currencies in the midst of the crypto boom. Still, there weren’t any rules to govern cryptocurrencies or regulations around approving digital assets for exchanges. The only frameworks that stood were the guidelines the SEC set to approve tokens as securities, which were created in 1946. This led Coinbase to press for more guidance.
July 21, 2022
Coinbase filed a petition asking a court to require the SEC to propose and adopt set regulator guidelines for cryptocurrencies and other digital assets. The crypto exchange expected the commission to use its formal rule-making process to set these regulatory guidelines, but the SEC never replied to the petition. Ultimately, Coinbase is pushing the agency to set crypto guidelines so it can operate legally.
In a YouTube video, Coinbase reported that it met with the SEC 30 times in 2022 alone to ask for guidance on how to comply with regulations. Instead of replying to Coinbase’s petition, the SEC began threatening the crypto exchange with legal action before making that a reality this past summer.
June 6, 2023
The SEC filed a lawsuit against Coinbase a day after taking legal action against its competitor, Binance. As Boardroom previously noted, the SEC’s lawsuit against Coinbase solely focuses on registration provisions and doesn’t include any allegations of fraud or misuse of customer funds. In the lawsuit, the SEC alleges that Coinbase is operating its crypto trading platform as an unregistered national securities exchange, broker, and clearing agency.
The lengthy complaint claims that Coinbase has been illegally making billions of dollars in profit since 2019 for facilitating crypto sales and purchases. This was the most shocking revelation, since the SEC reviewed Coinbase’s business practices and financial documents ahead of the exchange’s IPO in April 2021. One would think that would have come up then if there was a major concern.
August 4, 2023
Coinbase filed a brief in a federal court in Manhattan asking a judge to throw out the SEC’s lawsuit, claiming that none of the digital assets listed on its exchange qualify as securities.
What Happens Next?
From the time Coinbase filed its brief two months ago, the SEC had 60 days to respond. This means that we should hear an update on the lawsuit sometime this week. After that, Coinbase will have 21 days to respond to the SEC’s counter-brief.
As for the petition Coinbase filed in July 2022, there is still no movement on that, though the SEC is required to respond at some point. This case is taking place in the Third Circuit Court of Appeals, not a federal court in the Southern District of New York as the other case is.
Despite the various litigation proceedings, Grewal told Boardroom that Coinbase is still having other important conversations with the commission.
“With an important regulator like the SEC, I think it’s important that people understand that you can have strong disagreements on the law and what the legal requirements are on the one hand, and at the same time, work very productively on other issues in other areas,” he said.
Stay tuned as Boardroom continues to follow the legal battle between Coinbase and the SEC.
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