Coinbase was aware of securities law violations, SEC claims in letter

July 11, 2023

By Sharan Kaur Phillora

In a recent development, the United States Securities and Exchange Commission (SEC) has responded to Coinbase’s assertion that the regulatory body lacks jurisdiction to prosecute the popular cryptocurrency exchange. 

Here’s what we know: 

The SEC’s letter, sent to a district judge on July 7, claims that Coinbase was well aware of the likelihood that federal securities laws would apply to its operations. The exchange had even informed its shareholders openly about the possibility of assets traded on its platform being classified as securities.

The SEC’s response points out that Coinbase, a “multi-billion-dollar entity advised by sophisticated legal counsel,” deliberately disregards decades of established law under the Howey test. The regulator accuses Coinbase of attempting to create its own criteria for determining what constitutes an investment contract.

The SEC’s letter is in direct response to a previous filing from Coinbase, wherein the exchange notified the court of its intention to file a motion for judgment. According to Cornell University’s legal experts, such a motion is typically used when a party believes that there is no substantial dispute about the material facts of a case.

In its earlier filing, Coinbase referenced SEC Chair Gary Gensler’s appearance before Congress, during which he allegedly claimed that crypto exchanges lack market regulators and that only Congress has the authority to confer regulatory power. 

Coinbase also pointed out that it had provided exhaustive information to the SEC and the public about its activities two years before the regulatory body filed charges against them.

Roland Chase, a corporate and securities lawyer, shed light on the situation, stating that the SEC’s role, as authorized by Congress, is to review the documents submitted when a company goes public. The SEC’s purpose is to provide comments, ask questions, and improve the company’s disclosure to potential investors. Chase emphasized that the SEC does not possess the authority to deny a company’s public listing based solely on its opinion that investing in that company is unwise.

Coinbase was charged by the SEC on June 6 for allegedly offering unregistered securities since 2019. A pre-motion conference for the case has been scheduled for July 13 at 2:00 pm UTC. The outcome of this legal battle could have significant implications for the regulation of the cryptocurrency industry in the United States.

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.

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