SEC: Coinbase Knew Securities Laws Applied to Its Business
BY PYMNTS | JULY 9, 2023
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The Securities and Exchange Commission (SEC) says Coinbase has long understood securities laws apply to its business.
The SEC and the cryptocurrency platform have been engaged in an ongoing legal battle that culminated in a lawsuit against Coinbase last month.
Coinbase filed a motion weeks later, saying the SEC had no standing to bring a case against it. In its response to that claim Friday (July 9), the SEC took issue with the company’s claim.
“Coinbase, a multibillion-dollar entity advised by sophisticated legal counsel, argues it was unaware that its conduct risked violating the federal securities laws, and suggests that by approving Coinbase’s registration statement in 2021 the SEC confirmed the legality of Coinbase’s underlying business activities — at that time and for all time,” the SEC said.
The regulator also says Coinbase’s public filings indicate that one possible risk to its investors include the fact that listed assets might be considered securities.
“These actions clearly show that Coinbase understood that the securities laws could apply to its conduct and knew which rules to consider in evaluating the legality of its conduct, but nevertheless made the calculated decision to take on this risk in the name of growing its business,” the filing said.
PYMNTS has contacted Coinbase for comment but has not yet received a reply.
The SEC sued Coinbase last month as part of a broader cryptocurrency crackdown that also included legal action against Binance, the largest crypto exchange in the world. The commission’s action accuses Coinbase of operating as an unregistered exchange, brokerage and clearinghouse.
“The SEC’s central legal claim is that Coinbase has pocketed billions of dollars by collecting transaction fees from investors without the legally required disclosures and protections of securities registration — exposing its customers to risk,” PYMNTS wrote soon after the filing.
Coinbase, meanwhile, has consistently contended that the SEC has refused to give it a clear path for registering as a compliant trading platform.
The company filed a motion in federal court in late June arguing that the regulator does not have the authority to pursue its prosecution of Coinbase.
“The SEC can pursue its claims only if the tokens and staking services it has identified are ‘securities,’ reads the motion. “They are not. The claims must therefore be dismissed.”
With its motion, the company is pushing back against an agency that — as PYMNTS wrote last week — has decided that essentially 25,000-plus cryptocurrencies can thus be defined as securities and should therefore be regulated by the agency.
“And rather than chase down each individual token,” that report said, “the SEC is going right for the jugular and targeting the major players that facilitate the exchange and trading of digital assets, as well as the sector’s on-and-off ramps to traditional financial ecosystems.”
