Coinbase CEO says it is preparing to go to trial with US SEC

Coinbase is preparing for a year-long legal battle with the US Securities and Exchange Commission, the company’s CEO told CNBC on Tuesday, after the regulator warned the cryptocurrency exchange of potential securities law violations.

Last month, the SEC issued Coinbase with a Wells notice, which is often one of the last steps before the regulator formally issues charges. It generally sets the framework for the regulatory argument and gives the potential defendant an opportunity to rebut the SEC’s allegations.

Coinbase CEO Brian Armstrong called the issuance of the Wells notice “unfortunate” and said the company does not have more information about the specific issues the SEC has.

“We’ve met with them over 30 times in the last year … never got a single piece of feedback from them about what we can do better or differently, and then this Wells Notice came,” Armstrong told CNBC in an interview.

“I think we actually have to end up going to court to get the clarity we need and create case law.”

Case law refers to legal precedent.

The SEC has stepped up its scrutiny of crypto firms, going after companies it claims are offering unregistered securities. The SEC uses enforcement actions to target firms.

One of the most high-profile lawsuits is with a company called Ripple, which has been ongoing since 2020. The SEC alleges that Ripple sold unregistered securities. Ripple disputes the claim.

Asked by CNBC if Coinbase is prepared for a year-long battle with the SEC, Armstrong replied: “Absolutely.”

“We never seek litigation, but it appears that 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 said.

The cryptocurrency industry has complained that the SEC has not given companies clarity on what they can and cannot do. The SEC, meanwhile, argues that the rules are clear under existing laws.

Armstrong accused the SEC of a “disclaimer.”

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

The SEC was not immediately available for comment when contacted by CNBC.

Investors in Coinbase, which is listed in the US and whose stock is up about 90% this year, will be watching to see how the SEC issue plays out. Barclays said in a note this month that “regulatory overhang” on Coinbase stock “increased meaningfully” when the SEC issued the Wells notice.

“We believe the most onerous outcome may be that if various cryptoassets are deemed securities, Coinbase will therefore need to register as a securities exchange to continue offering trading in those assets,” Barclays added.

“Under current securities law, stock exchanges are not allowed to offer services directly to retail customers, and Coinbase could theoretically be forced to separate the exchange and brokerage portion of its business.”

On Tuesday, Armstrong spoke at a fintech event in London. He said the US “has the potential to be an important market in crypto” but right now is not delivering on regulatory clarity. If this continues, he said, Coinbase will consider options to invest more overseas, including moving from the US to other locations.

“I think that if we go several years where we don’t see regulatory clarity around us … we might have to consider investing more elsewhere in the world. Everything including, you know, relocation,” Armstrong said.

He added that the company is “looking at other markets” to invest in outside the US and is “probably going to invest more” in the UK, given its push to position itself as a crypto hub.

“We are a business … like any business we have a budget and we have to decide where to allocate it. And that means what products we want to build, but it also means what countries we want to invest in. given year ,” Armstrong told CNBC.

“And with the U.S. lagging a bit … we’re looking at other markets.”